Though figures from the CML showed the number of properties taken into possession by mortgage lenders rose in the first half of this year, the rate of increase in long-term arrears slowed, and shorter-term arrears fell, suggesting that the outlook going forward is not necessarily one of increasing numbers of repossessions. Therefore, the CML has not changed their current forecasts for repossessions in 2006 and 2007 as whole.
At 8,140, the number of repossessions was the highest since the first half of 2001, and was up from 5,690 in the second half of 2005, and 4,620 in the first half of last year.
Mortgages 6-12 months in arrears were little changed - up to 35,320 in the first half of this year, compared with 34,630 in the previous half year, and 31,470 in the first half of 2005.
Mortgages over 12 months in arrears rose from 14,380 in the second half of last year to 15,070 in the first half of 2006, up from 12,580 in the same period last year.
However, encouragingly the number of mortgages 3-6 months in arrears fell a little to 61,470, down from 62,920 in the second half of last year, though still a little higher than the 58,130 recorded in the first half of 2005.
The CML believes that the rise in payment problems followed the rise in interest rates between the autumn of 2003 and summer of 2004, and that these have now largely worked through.
The rise in interest rates will add to payment difficulties for hard-pressed mortgage borrowers at the margins, but the effect should be limited as increasing numbers of people have been shielding themselves from interest rate hikes by taking out fixed-rate mortgages. The interest rate rise was expected and has been factored into our forecasts for 2006 and 2007.
A number of positive factors are likely to influence the outlook favourably going forward. For example:
- the economy is growing at an above-trend rate, so helping employment;
- most new borrowers with high borrowings have offset interest rate risk by borrowing at fixed rates;
- the number of mortgages vulnerable to payment shock is reducing, and many of those coming off maturing fixed rate deals later this year and next will actually find that rates are priced lower now than their previous fix; and
- the growth of unsecured lending has slowed in the past eighteen months, which may well be a positive influence on the outlook for future mortgage payment difficulties if fewer borrowers are overindebted.
Commenting on the figures, CML director-general Michael Coogan said: "Repossessions are up, but remain historically low. Arrears have been stabilising, though the latest interest rate rise may have a modest effect over time. But we continue to expect repossessions to run at levels of around 15,000 a year between 2006 and 2008, well below their long-run trend.
"Lenders and the CML continue to work actively with the government and insurers on ways to offset the risks to borrowers of taking out long-term loans. It is really encouraging to see that those who would be most vulnerable to interest rate rises are increasingly offsetting their risk by borrowing at fixed rates."
