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Published on:May 9, 2013Author:The Debt Advisor

Figures published today by the Council of Mortgage Lenders (CML) show that the number of repossessions in the first quarter of 2013 reached 8,000, 17% down from the 9,600 seen in the corresponding quarter of 2012. There was a slight rise in the figures from the last quarter in 2012 but this was due to the ‘usual seasonal upturn’, according to CML. Levels of mortgage arrears also relatively flat across all the levels measured.

Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, stated: “It’s great to see that levels of repossessions continue to fall as, despite all the economic doom and gloom, lenders are not seeing any real increase in mortgage arrears or missed payments with fewer than 1 in every 1,400 mortgaged properties being repossessed each quarter.

“I believe that, whilst this is fantastic news, the continued downward trend is mainly due to record low interest rates – the lowest for four years – and increased payment flexibility from lenders which are both helping to stem the tide of potential repossessions.”


Mortgage bubble


“However, my main worry is for the 2.6 million or so UK householders who currently have interest-only mortgages,” continued Bev. “These people are on an interest-only mortgage for a reason – affordability. They are usually the people who can least afford a rise in their monthly outgoings and as many as 50%, according to the Financial Conduct Authority (FCA), might not have the funds or savings to cover the final bill.

“These people are in a mortgage bubble – trapped by rising prices and continued debt on the one hand and the tightening up of lending criteria and the increased costs of a repayment mortgage, on the other. This ultimately means that to switch away from this type of mortgage is impossible.

“Negative equity and a stagnant housing market only compound the problem further as borrowers are simply unable to cash in their properties to defuse this ticking time bomb.”


Secured lending


“Fortunately the secured loan market is improving with an increased number of lenders. This competition means that higher loan to value loans are being offered and interest rates are being driven down. This offers individuals on interest-only mortgages who need to raise capital to improve their property an option, which has to be good for the economy,” Bev explained.

However, Bev adds a note of caution: “Taking on more debt when you are unable to repay your original capital, especially in these uncertain economic times, needs to be carefully contemplated as interest rates will eventually rise and selling your property to pay off secured debt may not be a viable solution.”

Bev’s comments come at a time when total secured lending in the UK is on the increase and unsecured lending on the way down. Total secured lending in March was £1.266 trillion, up from £1.249 trillion the previous month.


Sale and rent back


Bev continued: “It’s clear that borrowers with an interest-only mortgage – nearly a third of the total mortgage market – face an uncertain future. Their ultimate salvation will be for the housing market to pick up and start to function normally. This will hopefully give those who are trapped in the mortgage bubble the exit strategy they need before that bubble bursts.

“We need to encourage ethical organisations and lenders to help those coming to the end of their interest-only terms. We need to give them the tools and support they need and really get creative to help them pay off their debt and keep their homes.

“Unfortunately, solutions such as ‘sale and rent back’ – which is essentially used in Islamic mortgages – were deemed to have been unaffordable or unsuitable and should never have been sold. In the last two years the Financial Services Authority has effectively shut this market down.

“We need more of these sorts of creative solutions as they really help people and give them the breathing space they need to get their finances in order. The demise of these schemes means that people who are struggling to repay their mortgages have even fewer options.”

Bev concluded: “Debt and repossession levels are relatively stable at the moment but with the economy struggling to get going and bills on their way up, it’s clear that we will be in uncertain times for a while yet.”