Mortgage repossessions increase

There were 12,800 repossessions by first-charge mortgage lenders (including buy-to-let) in the first quarter of this year, according to the Council of Mortgage Lenders.

This compares with 10,400 in the fourth quarter of last year, and 8,500 in the first quarter of 2008.

Although repossessions are still rising, the CML now thinks its 75,000 forecast looks pessimistic for the year as a whole, and expects to revise the figure downwards in its next housing market forecast update.

The number of mortgages in arrears continued to rise on all measures. However, the "number of months" measure is disproportionately affected by the very low interest rate environment at present (as it is calculated by dividing the total outstanding arrears by the current monthly payment). It is more consistent to measure arrears as a percentage of the total outstanding mortgage balance.

The chart below shows this effect, and how it has caused the "3 months" and "2.5% balance" figures to diverge recently.

The number of loans with arrears of more than 2.5% of the mortgage balance rose by 12% from 182,600 in the fourth quarter of 2008 to 205,300 in the first quarter of this year (62% up on the 127,000 in the first quarter of 2008).

Normally, the CML urges a comparison of the rate of arrears and possessions as a proportion of the total stock of mortgages. However, in this quarter such a comparison is misleading because it is distorted by a significant change in the published total number of outstanding mortgages. In the first quarter of 2009 around 500,000 "legacy loans" (those retaining only a nominal outstanding balance, for example for deed storage purposes) were newly excluded by reporting lenders from the total number of outstanding mortgages, in line with the CML's existing guidance notes. Combined with a genuine modest reduction in the number of outstanding mortgages, this has had the effect of bringing down the number of existing mortgages from around 11.7 million to around 11.1 million. Unfortunately, it has not been possible to revise earlier estimates of the total stock on a consistent basis.

Commenting on arrears and repossessions, CML Director General Michael Coogan said: "Despite technical issues this quarter affecting our ability to compare arrears and possession rates with earlier periods, it is clear that mortgage arrears continued to increase. So did repossessions, but not as much as our 75,000 forecast figure for the year would suggest. So our forecast now looks pessimistic and we expect to revise it over the next month or so. Lenders are acutely conscious that behind the statistics are real people, many of whom are affected by the economic downturn and its impacts on unemployment, changes in circumstances and inability to refinance.

"Lenders genuinely want to help borrowers where borrowers are committed to working with them. It is quite clear that the number of arrears cases is rising far more markedly than the number of repossessions. Lenders are demonstrably increasing the forbearance they are offering, while many struggling borrowers have gained some breathing space through lower interest rates feeding through to lower monthly payments. The government has strengthened the benefits system, and while initiatives such as mortgage rescue and the home-owner mortgage support scheme are not appropriate for everyone, they have encouraged more borrowers to discuss their options with lenders and money advisers, which is helpful.

"The key message continues to be: talk to your lender as soon as you identify difficulties emerging, and take advice from an independent money adviser if you have other debt issues as well as your mortgage. Lenders do not want to repossess if a realistic alternative solution can be found."