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Fitch warns that repossessions could go on rising

Fitch Ratings has warned that borrowers’ affordability problems are worsening, which could lead to further increases in arrears and repossessions.

The rating agency says that three major affordability measures in the UK residential housing sector – house price to earnings, income multiple and debt service to income – have deteriorated significantly since 2003.

It adds that this increased pressure on borrowers’ ability to meet their mortgage obligations is a trend that is set to continue. The fears come as many predict interest rates are set to rise again this year from the current 5.25 per cent level, and after the Council of Mortgage Lenders last week revealed a 65 per cent increasein repossessions in 2006.

Fitch’s greatest concern is in the non-conforming market where competition has become intense and underwriting criteria have been loosened over time.

Senior director Suzanna Albers says: “The increase in debt service to income (DTI) is most alarming, because only this measure takes into account the recent lower history for interest rates.

“Householders have taken on a greater volume of mortgage debt. This means that there has been an increase in DTI ratios, even during a period of relatively low interest rates. It would therefore take a much lower increase in interest rates than that seen in the last recession to have a similarly severe impact on borrower affordability, which would then feed through to increased mortgage arrears and repossessions.”


Repo realities

Guy Anker looks at the reasons for the rising repossession rate.

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