The total number of repossessions has remained low throughout the financial crisis and the numbers have been falling over the last 12 months.
Recent figures from the Council of Mortgage Lenders show repossessions for the whole of 2010 were 24 per cent lower than in 2009. A total of 36,300 homes were repossessed last year, less than half the 75,000 repossessions a year seen in the early 1990s.
Financial outsourcing firm HML predicts repossession rates will continue to fall in the first half of this year and estimates total repossessions of just 15,557 in the first six months. However, both the CML and HML expect this trend to reverse later in the year.
The CML is forecasting roughly 40,000 repossessions this year while HML expects to see repossessions increase to 17,700 between July and December.
Coreco communications director Andrew Montlake believes a fall in repossessions is nothing to get excited about. He says: “It is not a sign of recovery. It is a continued clinging on on the part of borrowers.”
Private Finance director of communications Melanie Bien believes the reason the last few years have compared favourably with the early 1990s is less to do with a stronger economy and more to do with increased intervention from the authorities.
She says: “Everyone is saying repossessions are low and that is a sign of recovery but it is forbearance from the lenders and the various Government support schemes that have caused this. There is still cause for concern.”
But low interest rates have also helped many borrowers who would otherwise have struggled.<br />
Montlake says: “Many people were given a lifeline when the base rate was slashed. They are going to struggle when the rate rises and it is going to go up at least 2 per cent over the next 12 months.”
Bien says: “There were more repossessions in the 1990s because interest rates were so high. It made mortgages unaffordable, people lost their jobs and the combination was crippling.”
But she does not believe history will repeat itself when interest rates eventually start to rise. She says: “The Bank of England will be very aware of the fact that repossession could become a big issue when calculating interest rates. It is not in anyone’s interest for people to lose their homes.”
Despite the fact that many commentators, including the CBI, predict three bank rate increases this year, Bien does not believe it will exceed 2 per cent by the end of 2012.
Boulger says: “Interest rates were well into double figures in the 1990s, even after we had escaped from the exchange rate mechanism in 1992. The monetary policy committee will be reluctant to increase rates too much. It would mean house prices dropping sharply, repossessions increasing sharply and it would make economic recovery even harder.”
Montlake says the timing of any interest rate increases is as important as how quickly it rises. He says: “The question is, how far the rate rises can go before the recovery kicks in. It needs to match the rate at which job market recovery occurs. Timing is everything.”
In addition to the timing of the interest rate increases, HML also cites a number of other influences that will combine to push repossession rates higher in the second half of this year. It says the loss of public sector jobs, VAT rises, a limit to lender forbearance and a reduction in mortgage interest rate relief will all add to the cumulative effect.
Bien agrees that “the slashing of Government support” will be an issue for mortgage borrowers and calls for lenders to continue their forbearance.
Boulger says: “There are 22 different tax rises coming into play this year. We can expect a lot of austerity to come and a lack of new money will hold the housing market back.”
There is already concern over the increasing number of borrowers in serious arrear, with four consecutive quarterly increases in this group.
Boulger says: “If this number is not even falling under the current low interest rates, then it suggests systemic problem.”
But HML predicts that repossessions will remain significantly lower than they were in the 1990s.
Montlake says: “I am relatively optimistic. I think there is worse to come but while the interest rate rise will catch out some people, I do not believe we will see it get to a level where there will be a massive amount of repossessions as there was in the 1990s.”
Boulger says: “There is no realistic likelihood of going back to anything like the 1990s but I would not bank on seeing much growth in the housing market in 2011. However, that has been the case for the past few years. I think HML’s predictions just mean things are not getting any better.”