Alarming rise in Home repossessions

Home repossession is on rise in England and Wales. First quarter of 2008 witnessed 16pc rise in the claims compared to same quarter last year. It is likely to touch the level witnessed in nineties.
During 1990, the number of claims issued was 1,45000. It rose to 1,86649 in 1992.

According to Ministry of Justice report, 39,000 mortgage possession claims have been issued so far. This is 7pc higher compared to fourth quarter of 2007. It also reports 9pc rise in the mortgage repossession orders.

The report indicates that number of landlord possession claims has reached record figure of 37,221, which is 4pc higher than first quarter of 2007.

To ease out the situation, Government announced that it will provide free legal advice to the homeowners and will also facilitate payment of mortgages.

The chairman of the Building Societies Association (BSA) has serious apprehensions about recovery of mortgage markets in the next 2 years.

Iain Cornish, while addressing home owners at BSA conference in Manchester, cautioned that they will be operating very differently once global and domestic markets recover.

Mortgage lenders have already initiated steps to safeguard their interests. Home loan offers have been cut down. They do not intend making interest rate cuts, and have enhanced minimum deposit amount for the deals. 

The Bank of England’s decision to hold interest rate at 5% will be of no help to the house-owners.

What are the policymakers and experts saying about the UK housing market?

Mervyn King, the governor of the BoE, recently told MPs that it would be a big mistake to go back to a stage where the mortgage market was - when loans were easier to come by and were cheaper a year ago.

Prime Minister Gordon Brown recently told the BBC’s Today programme that the housing market was one of a several economic issues to be dealt with along with help for pensioners and low-income families on fuel bills and petrol prices. He added: “Now, I think that we can come through this as a country.” 

The Liberal Democrat’s deputy leader and Treasury spokesman, Vince Cable, felt substantial house price falls should be expected. “It does unfortunately mean that a huge number of people who often had no choice but to get very large mortgages at the peak of the market, they now find themselves trapped in the problem of negative equity,” he added.

UK economist at Global Insight, Howard Archer remarked: “A significant number of individuals have had to stretch themselves (to the absolute limit) for getting into the housing market in recent times as prices soared. This means that they are particularly vulnerable to any kind of adverse shock to their finances.”

Rechecking the fundamentals of the housing market

The mortgage lending body, CML, states that there are about 11.8 million outstanding mortgages in the UK. The number of people who are missing mortgage repayments is partly owing to the rise in household bills – an effect of the increasing price of food and fuel.

The availability of credit has also been cut. So, is there any help in the offing for homeowners?  The CML figures came on the day the UK government gave details of plans aimed at providing some help to homeowners struggling to pay back their mortgages. It stated there would be more free legal advice for those individuals at risk of repossession, apart from specialist training and orientation for debt advice agencies.

Housing Minister Caroline Flint recently mentioned: “It is important to recognise that we are dealing with a totally different situation in the market from what we experienced in the early 1990s. The fundamentals of the housing market still remain strong with high employment, long-term demand for homes from first-time buyers and low interest rates.”

Adopt a prudent approach based on the market conditions

Buy to let investors should adopt a prudent approach based on the market conditions. Even as they think long-term, they should take into account prevailing circumstances.

Check whether you are charging market rent or it is time for you to consider some increase (falling within the constraints of your tenancy agreements, needless to say.

If you have not remortgaged for some period of time, you may be on the standard variable rate of your lender and paying more interest than you are required to spend on your mortgage payments. In such a scenario, you may consider switching deals. See if you can get an extra room in a property, thus increasing your rental income.

Buy to let investors should not ever disregard high arrangement fees. If one goes through any particular mortgage ‘best buy’ table, one would notice that all the leading ‘buy to let’ rates have either high percentage fees or flat rates.

Depending on the size of your mortgage, it might be sensible to pay a seemingly high fee rather than the fee - calculated as a percentage of the loan. Taking this into account, evaluate any list of mortgage best buys.

Mortgage institutions continue to up the interest rates

Just recently, the Bradford & Bingley, a leading mortgage bank, decided to restrict its lending to new borrowers. It chose to drop its popular two-year fixed rate deal that required a minimum 5 per cent deposit, and replaced it with two new deals - lasting for either three years or up to 10 years.

Simultaneously, another leading mortgage lender, the Woolwich, took a decision that affected the three deals it still had on offer with a 5 per cent deposit - a five-year fixed mortgage, a lifetime tracker, and loans on its standard variable rate.

Although B & B would still ask borrowers as a mandatory step to put down mere 5 per cent of the property’s value, the interest rates stand charged. In fact, they are now significantly higher than before - at either 6.49 per cent or 6.69 per cent respectively as compared with 5.59 per cent on their previous two-year deal.

Meanwhile, the CML – an official body of mortage lenders – has predicted that there will be about 45,000 repossessions in 2008 (up from just 27,100 a year ago).

Just about 204 mortgages currently available compared with 997 a year ago

The credit crunch, which led to the nationalisation of the Northern Rock bank, has also caused a rapid shrinking of the mortgage market size as many lenders now find it tougher to raise funds - by borrowing from any other financial institution. Mortgages worth 125 per cent of a given property’s value disappeared earlier in 2008, immediately followed by 100 per cent mortgages.

Now deals that require a 5 per cent deposit are becoming tougher to find and deposits of 10 per cent, or even 15 per cent, may soon become standard, according to some housing market experts. “There are some 5 per cent deals still available, such as ones with the Post Office, RBS, HSBC and Skipton building society,” stated a mortgage market observer.

Compared to even a few weeks ago, there are very few good deals few around. According to a leading financial information service, there are presently 204 mortgages available from nearly 51 lenders who need a 5 per cent deposit, compared with almost 997 deals on offer a year ago.

The Woolwich demands a 10 per cent deposit from new borrowers

The mortgage lending arm of one of the leading banks – Barclays - has become the latest major lender to demand at least a 10 per cent deposit from all its new borrowers.

The Woolwich, the mortgage lending arm of Barclays, has taken a decision perceived to be another clear indication of the credit crunch. The credit squeeze has forced many lenders to cut down on their lending. The Nationwide has just recently imposed a minimum 10 per cent deposit on almost all but two of its mortgage deals. Others with similar policies are Cheltenham & Gloucester, Alliance & Leicester, the Britannia and the Co-op bank.

“Set against the background of a continuously and drastically changing market, (we feel) it is prudent from a customer perspective to restrict the maximum loan to value (LTV) available to 90 per cent,” the Woolwich stated. The mortgage player has withdrawn all products, which are currently available for loans above 90 per cent with effect from May 8.

The latest statistics regarding claims and orders released

The number of homeowners in the UK facing repossession orders has gone up, states the Ministry of Justice. Repossession orders are issued against a homeowner after he or she fails to keep up with the mortgage payments.  According to the Ministry of Justice, the number of repossession orders made by the courts in England & Wales at an early stage of the (repossession) process rose 17 per cent in the first quarter of the year 2008. It says that there were 27,530 repossession orders made. The figure is up from 23,438 in the same period of previous year. The credit crunch, according to market observers, has led to more expensive and unaffordable repayments for new mortgages and a resultant cut in the availability of deals.

The statistics regarding claims and orders are also not too encouraging. The number of claims for mortgage possession – deemed to be the first step for the repossession was also up. This is the stage when a defaulting homeowner is threatened with action. In the first three months of the year there were 38,688 claims compared with 33,344 in the same period last year - a rise of 16 per cent. This was also 7 per cent higher than the final three months of previous year.

Wales registers the biggest rise in the number of mortgage possession claims

The mortgage possession claims stage comes before the impending mortgage possession orders, when a court grants or passes an order for possession of a home.

However, most of these homes do not actually end up getting repossessed. This is mainly because the borrower can present the court with his or her case for not proceeding. Alternatively, the lender reaches an arrangement with the defaulting borrower.

The latest figures from Ministry of Justice indicate that the rise in the number of orders made was greatest in Wales - up nearly 26 per cent in the first three months of 2008 compared with the figures for the same period last year.

There was a 23 per cent rise over the same period in the North West, and rise of 22 per cent in the Midlands, 9 per cent in the South East, 11 per cent in the South West and 1 per cent in the North East. Another major concern is tighter household budgets, which has largely led to the repossessions. The number of actual repossessions, by private lenders only, across the UK is shown in figures from the Council of Mortgage Lenders (CML). The figures are published twice a year.

Underlying conditions for most mortgage borrowers are certainly more positive

The housing market experts are trying to work out the implications of the fact that prices continue to fall. According to a housing market expert, the market was very different to the scenario in the late 1980s and also early 1990s.

The underlying conditions for a majority of mortgage borrowers are certainly more positive than some would suggest,” another one said. Ms Earley, of the Nationwide, stated that the Bank of England’s (BoE) plan worked out for banks so that they could swap potentially risky mortgage debts for secure government bonds was well thought out.

The BoE plan is of £50bn, which gives an idea of the gravity of the situation, and the efforts being made to tackle it. She added it would help in stabilising the volatile mortgage market, but thought it would not lead to mortgage lending and house prices returning to the levels witnessed this time last year. She observed more people were on fixed-rate than variable rate mortgage deals unlike the 1990s crash and this helped the stability of the market to some extent.