“CALM BEFORE THE STORM”, WARNS THE DEBT ADVISOR AS REPOSSESSIONS CONTINUE TO FALL
Figures published today by the Council of Mortgage Lenders (CML) show that the number of repossessions in the final quarter of 2011 reached 8,500 down nearly 9% from 9,300 in the third quarter of 2011. For the whole of 2011, a total of 36,200 properties were taken into possession – slightly less than the 36,300 that were repossessed in 2010 and the lowest level since 2007. Levels of mortgage arrears also dropped slightly in 2011, compared with 2010.
Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, stated: “I’m not surprised that levels of repossessions have continued to fall as, despite the economic doom and gloom, lenders are not seeing an increase in arrears or missed mortgage payments. Thankfully, due mainly to record low interest rates and increased flexibility from lenders, people are still paying their mortgage – but only just!
“The CML are predicting 45,000 repossessions for this year so it’s clear that they expect things to get worse, not better. This isn’t great news, especially if you own one of the 101 properties being repossessed every day but at least it’s lower than previous years – especially the levels seen in the 90s.”
“I believe that worse is yet to come and we may only be seeing the calm before the storm as increased pressure – seemingly from all directions – will hit the average homeowner.”
Bev highlights the relationship between unemployment and repossession and warns about a potential issue in the mortgage market which could further impact on people in serious debt. She continued: “Unemployment and levels of repossessions are inextricably linked. The Council of Mortgage Lenders (CML) clearly thinks that repossessions will rise in 2012 at the same time as a continued rise in unemployment, currently at 8.4%.
“We are already starting to see lenders ‘weaning people off’ interest only mortgages – just yesterday, Santander became the first major high street bank to demand a 50% deposit or equity in order to obtain an interest only mortgage.
“This will be the shape of things to come with lenders eventually trying to switch people away from interest only mortgages – some 58% of the entire mortgage market. Even when people do have an additional savings plan to repay the capital, these are often insufficient to pay off the outstanding capital at the end of the mortgage.
Ticking time bomb
“I see huge problems for people on interest only mortgages who have not made adequate additional savings plans and who are being squeezed by their lender to move to a repayment mortgage. As interest rates rise, pressure will increase. Add to this continued volatility in the economy, high prices at the tills and the less than rosy prospects in the job market and I think we have a ticking time bomb on our hands.
“We need a real shake-up in the market. Lenders need to work closely with the debt management industry to set-up life plans or construct a new, hybrid model for mortgages if we are to stem the tide of arrears and repossessions in the future.”
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