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Repo rethink

A shudder was sent through the lending industry recently with statistics from the Department of Constitutional Affairs covering the number of possession actions issued in the courts during the first quarter of this year showing a 35 per cent increase on 2004.

I accept that an increase of this magnitude should be cause for reflection and closer scrutiny but I suggest that the numbers should not be taken at face value without further scru-tiny. It should be remembered that the DCA’s stat- istics for possession action encompass not only mortgage possession actions issued by lenders but also include possession claims by local authorities.

The number of possession actions issued by local authorities and lenders increased during last year and the DCA’s statistics confirm that the number of actions again rose in the first quarter of this year.

However, a closer examination of the figures shows that the percentage of possession orders that have been made has not increased in the same ratio.

It is clear that although lenders and local authorities are issuing more possession actions, this is not being reflected in the number of orders that the courts are making.

In 1997, possession orders were made in 85 per cent of cases, whereas in the first quarter of this year, the figure is down to 54 per cent.

Although this translates into 25,869 possession orders for the first quarter of this year, the DCA’s figures show that 56 per cent of these orders were suspended by the court.

This means that homeowners have been given the opportunity by the court to repay their arrears over a period of time as well as maintaining their current monthly instalments.

It appears that possession proceedings are being used perhaps by both len-ders and homeowners as part of the collections pro-cess rather than as a repossession fait accompli.

Not only is the probability of a possession order being made in a possession action significantly reduced but last year, properties were only taken into possession in 8 per cent of the actions issued. This is further evidence that home- owners are working with lenders to avoid repossession at all stages of the court process.

What the statistics do not show is the increase in the number of mortgages. There are currently 691,000 more mortgages outstanding than in 1998.

The number of possession actions issued last year was 0.4 per cent of the current outstanding mortgages compared with 0.61 per cent in 1998.

The downward trend in repossessions over the past few years has been the result of a strong housing market, low interest rates, a stable economy and low levels of unemployment.

I also think the development of a vibrant sub-prime market and the shift in attitude of lenders and the courts have all contributed to a healthier climate for homeowners.

People who find themselves in difficulties now have choices available to them for refinance and len-ders are more willing to listen and proactively help.

The DTI’s report on over-indebtedness last July highlighted the three main causes of financial difficulties:

l A sudden change in per-sonal circumstances.

l Low income.

l Over-commitment.

It is accepted by most commentators that the percentage of people encountering problems caused by a change in circumstances, usually relationship breakdown, remains relatively constant.

Similarly, the CML forecasts a broadly favourable economic outlook for the period 2005-07, which indicates that low income will not be a major factor in the cause of problems for homeowners.

What has changed markedly over the past few years is the level of debt that people have been willing to take on and we have seen attempts to control the housing market and to curb consumer spending through interest rate rises.s

The trimming of the growth forecast by the Bank of England and poor results from the high street indicate that consumer demand has fallen which will lessen the chance of rate rises and help home- owners continue to man- age their mortgage payments. However, the full impact of last year’s rate rises will continue to affect homeowners over the next few months.

The likelihood is that we will continue to see a rise in the number of possession actions being issued which will give concern but we should not lose sight of the number of homes being repossessed which has reduced in actual and percentage terms year on year.

It appears there is dialogue and co-operation between homeowners finding themselves in difficulties and lenders to try and work together to keep people in their homes.

As a solicitor who worked in this sector during the last recession and in the negative equity years, I can say that this is a real shift of attitude which should only be encouraged.

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