Disclosing the details, the FSA stated that 9,145 people lost their homes to lenders during the period while the number of people falling behind with their mortgage payments fell for the seventh straight quarter. So as we emerge slowly from the recession this is great news, however, there may be trouble around the corner.
First of all there are probably two main reasons for these low repossession numbers:
- Lenders are currently reluctant to repossess houses as this will depress house prices and increases any losses on the transactions. Thus making their already sickly looking balance sheets look even worse.
- Lenders, under new directives, must make every effort to avoid repossession including allowing borrowers to add arrears to their existing loan.
So what’s the problem you may ask?
- Well firstly a borrower can only add arrears to their loan for so long. They ultimately will fall into negative equity and with interest rates only able to go one way lenders will have to act.
- Also unemployment is on the rise with forthcoming government cuts adding to the problem.
- Information is coming through that less houses are coming on to the market so prices may well halt their recent slide. If this happens lenders may well seize the opportunity to push the button on more repossessions.
- Before people go into arrears on their mortgage they will usually attempt to stave off the bailiffs by using existing credit cards and loans to meet their mortgage repayments. What this means is that the almost inevitable repossession is delayed until the point when they exhaust all other credit avenues. So it could well be that the repossessions early on in the recession were those people who didn’t have any other credit avenues to keep the wolf from the door. Once most of these homes were repossessed the figures fell and will probably continue to do so until the point where the ‘hidden’ people in arrears run out of credit options. If this holds true then we may well see the repossession figures climb once again
I don’t wish to appear too negative at this festive time, but my advice would be to make sure you’re managing your budget closely and not assume that lenders will always be acting like Father Christmas.
(Image: renjith krishnan / FreeDigitalPhotos.net)