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Home repossessions continue to fall

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The number of homeowners who default on their mortgages and have their homes repossessed is falling.

Quarterly figures released by The Council of Mortgage Lenders (CML) reveal that the number of repossessions is decreasing.

The proportion (and number) of mortgage borrowers in arrears dropped across each of the ‘arrears bands’. A total of 149,400 mortgages (1.33% of all homeloans) were behind with their repayments by more than 2.5% of their total mortgage debt in Q3.

This was down from 154,900 (1.38%) in Q2, and 159,100 (1.4%) in Q3 2012. Repossessions in the first half of this year were at their lowest for six years at 15,700.

Of the 7,200 total repossessions, 1,500 were buy-to-let.

At 0.1%, the rate of repossession on buy-to-let mortgages is slightly higher than the rate for residential mortgages (0.06%), despite the fact that arrears in the buy-to-let market are lower than in the home-owner market.

While buy-to-let mortgages represent over 13% of the total number of mortgages in the UK, the sector accounts for only 9% of the total number of mortgages in arrears.

This apparent discrepancy is explained by industry practice: lenders act more quickly to repossess buy-to-let properties in arrears than to take back a homeowner’s primary residence.

The improvement in reossession figures over all is mainly a function of affordability. A combination of super-low Base Rate and government schemes such as Funding for Lending and Help to Buy has kept the cost of borrowing down, particularly in the past 12 months,  helping borrowers afford their monthly mortgage repayments.

The UK’s largest mortgage lender Halifax calculated in August that the average borrower’s mortgage payment accounted for 27% of their monthly outgoings – the most affordable level for 14 years.

Bank of England figures revealed that the typical interest rate taken out by borrowers on new mortgages in Q2 fell to a new low of 3.47%.

In Q2 this year 7,700 properties were repossessed by mortgage lenders, a 4% drop on Q1.

I December, the CML predicted that the total number of repossessions this year would come in at 35,000, a similar figure to 2012.

It has now revided that figure to ‘under 30,000O, and sais it would also revise down its existing forecast for 37,000 repossessions in 2014.

Jonathan Harris, director of mortgage broker Anderson Harris, said:

“It is encouraging that the number of repossessions continues to fall to its lowest level since 2008, along with a decline in the number of mortgages in arrears. However, the fact that there are any borrowers who are struggling when interest rates are at record lows is cause for concern, particularly as the Bank of England inflation data released yesterday suggested that interest rates may have to rise sooner than the Bank’s previous target of 2016.

“Those already struggling to pay their mortgages may now be panicking that the situation will only get worse once rates start to rise. Anyone in this position should speak to their lender about possible solutions. While lenders continue to show forbearance to those in difficulty with their mortgage, borrowers must take some responsibility and contact their bank, ideally before they miss a payment. It may be that some compromise can be reached whereby the mortgage is switched to interest only, the term extended, or the borrower even takes a payment holiday, in order to keep them and their family in their home.

“Borrowers who aren’t struggling yet but would do so if rates were to rise should also consider a fixed-rate mortgage. Although there is a premium to pay for a five-year fix compared with its two-year equivalent, it might be worth doing so to buy protection for a longer period of time.

“The Government’s mortgage rescue scheme ends in March next year so it might be time for the Government to find something similar to help those in arrears and threatened with repossession. Clearly, despite low interest rates there is significant demand.”

George Spencer, chief executive officer of online lettings company, added:

“Arrears in the buy-to-let sector continue to be lower than in the mainstream residential market, suggesting that landlords are serious about their investments and are sensible about not overstretching themselves. However, when it comes to repossessions, there are proportionately more in the buy-to-let sector than with homeowner mortgages, illustrating how things can go wrong if you take your eye off the ball.

“Landlords need to be vigilant and ensure that they keep a close eye on their investment portfolio, particularly if they are managing it themselves. If tenants miss a rental payment, the landlord must find out why, as soon as possible, as this will dictate how they deal with the issue. There may be a legitimate reason such as they’ve lost their job, their benefits have been cut or they’ve been off work sick so they simply can’t afford it. However, they may be withholding rent because they believe there is something wrong with the property or they’re just being lazy or disorganised and have forgotten to pay. Having someone in a rental property for a period of time, not paying rent, can have a significant impact on the landlord’s ability to pay their buy-to-let mortgage, so it’s important to get to the bottom of it and find a solution as soon as possible.”