Repossessions rise sharply – and worse news is on the way…
Record numbers of hard-pressed British householders are facing the nightmare scenario of losing their homes as the credit crunch bites harder. As property prices start to plummet and the mortgage market melts down, many borrowers are increasingly finding themselves in a vice grip of nose-diving negative equity and rising loan repayments.
Too alarmist? Sadly, probably not. Actually, the repossession figures have been making increasingly grim reading for a couple of years, but most people haven’t paid much attention until recently because most of the other things in the garden have been looking quite rosy.
But times are changing, and fast. The respected Halifax and Nationwide surveys have confirmed that UK house prices are now actually declining on a year-on-year basis. And mortgage lenders, who until very recently seemed happy to advance vast loans on massive income multiples to virtually anyone who could tell a semi-plausible tale about his or her income…well, the shutters have been put up and the cashpoint almost closed.
For many people, the mindset has moved from ‘how much can I borrow?’ to ‘how do I service my mortgage debt?’ As credit monitor Callcredit put it today: “The rising cost of living is clearly hitting home and consumers are becoming increasingly concerned about their financial commitments, with a 20% rise in the number checking their credit reports to manage their finances.”
Inevitably, there’s also a much sharper focus on the repossession problem. And specifically, how bad it will get.
Today’s release from the Ministry of Justice (MoJ) – the irony won’t be lost on many repossession victims probably feeling that life feels particularly unjust at present - shows the number of mortgage possession claims (the first stage of the repo process) rising to 38,688 in 2008’s first quarter. In the desiccated language of the MoJ, that’s a ‘seasonally adjusted’ 16% jump on a year ago and 7% higher than the last quarter of 2007.
27,530 mortgage possession orders - when a court grants an order for possession of a home - were made in the first three months of the year, 17% up on the first quarter of 2007 and 9% higher than in the fourth quarter of 2007. At least suspensions, i.e. the cases in which a property is not repossessed, mainly because the lender comes to an arrangement with the borrower, held steady at 47%.
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For the moment, repossession levels are still way below the horror story heights of the early 1990s when the annual number of ‘orders made’ exceeded 100,000 for four years, peaking at over 140,000 in 1991 with almost 76,000 of those cases resulting in the property being lost.
Clearly, the collateral damage from all that lax lending hasn’t yet shown up in the repo stats. And it’s not just recent house buyers who are now very vulnerable. The homelessness charity Shelter reckons that one timebomb has been primed by the large increase in the volume of secondary loans taken out by home owners cashing in on previously inflated house prices.
Often the cash raised has been splashed out on holidays, home improvements or to pay off credit cards. But now it’s almost certainly gone, and the repayment costs are hurting. The charity calculates that at least 20% of recently issued repossession orders are from lenders taking action against those with secondary debt, and expects to see far higher numbers of people losing their homes than either the government and mortgage lenders predict, at upwards of 53,000 this year.
What really scares Shelter is that many of the secondary loan lenders will issue repossession orders over just a small payment default, unlike the mainstream mortgage providers who normally grant borrowers more leeway.
And as for buy–to–let - such highly leveraged property speculation, often by inexperienced ‘investors’ hoping that even more foolhardy punters would buy their properties at a later date, was always doomed to come unstuck.
A double whammy of unlet properties and rising repayments is already putting the squeeze on many buy-to-let landlords in provincial cities. If lenders now decide to demand ‘margin calls’ from their borrowers to maintain loan-to-value ratios, both forced selling and repossessions could go through the roof.
Of course, the really worrying bit is that if the property market is showing this level of distress at the moment, what will it be like when the economy really hits the buffers and unemployment starts to rise? Those 1990s numbers could be left far behind.
