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Last Updated: Wednesday, 13 February 2008, 10:53 GMT
Sub-prime drives UK repossessions
Empty house
Repossessions are on the rise, say official figures
Sub-prime lenders are bringing more than half of UK repossession orders, despite accounting for just 6% of total mortgages, a BBC report has found.

The sub-prime market caters for people with poor credit histories and has been under pressure because of an increase in interest rates and borrowing costs.

Official figures showed last week that actual repossessions rose to an eight-year high of 27,000 in 2007.

Analysts have warned that conditions may deteriorate further this year.

The research on sub-prime repossession orders was carried out by BBC Radio Five Live's Wake up to Money programme, which looked at 1,200 cases going through 18 county courts in January 2008.

It found that more than 10% of the cases were brought by two sub-prime lenders owned by US investment bank Lehman Brothers.

However, it must be said that most court possession actions do not always lead to repossession because borrowers in trouble usually reach a settlement with their lender or sell their house to meet overdue payments.

Bad credit

Sub-prime operators say that it is only natural that default rates will be higher amongst their customers, many of whom have bad credit histories.

But the degree to which sub-prime lenders dominated the sample is surprisingly large, experts said.

Southern Pacific Mortgage Limited (SPML) and Preferred Mortgages - both Lehman Brothers offshoots - were named in 148 cases in the sample.

Five out of six are resolved without having recourse to repossession
Lehman Brothers

A spokesperson for SPML and Preferred said a large proportion of its cases were resolved without the necessity for repossession.

"The figures are based on possession claims hearings and are therefore not representative of actual repossessions, which are a lot lower," he said.

"Of proceedings started, where solicitors become involved, five out of six are resolved without having recourse to repossession," he added.

GE Money and GMAC-RFC, two of the biggest sub-prime lenders in the UK, were each listed in more than 100 cases found in the sample.

"It should come as no surprise that those lenders dealing with borrowers with past credit problems are likely to have to deal with more cases of default amongst their borrowers," said a GMAC spokesman.

"Comparing lenders like GMAC-RFC with high street lenders is a bit like comparing apples and pears," he added.

Mainstream

Among the biggest mainstream lenders, Britannia, Bradford & Bingley and Northern Rock were found to be using the courts the most, relative to their market share.

In the past year the Northern Rock has been accused of being a particularly aggressive re-possessor.

However, a spokesman denied that this was the case.

"We continue to treat our borrowers fairly and in the light of their individual circumstances with possession as a last resort.

"Our policy of forbearance is borne out by the fact that the number is lower than might be expected from our market share - and again it is worth repeating that not all actions lead to possession," he added.

The total for Britannia includes its subsidiary which specifically arranges sub-prime mortgages - Platform Funding.

Less willing

The BBC research recreated a similar study done in January 2007, contained in a recent report from the Citizens Advice Bureau (CAB).

This claimed that sub-prime lenders were less willing than mainstream mortgage lenders to negotiate with borrowers in arrears.

Their report, entitled Set Up to Fail, noted that the level of repossession actions in county courts was now running at a rate last seen during the repossessions crisis of the early 1990s.

The CAB said that was despite the number of loans in serious arrears being much lower.

This story was broadcast on BBC Radio Five Live's Wake up to Money on Wednesday 13 February at 0530, and can now be downloaded to your computer or MP3 player.

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