Despite the Bank of England surprising the market by increasing the base rate in January, the mortgage market has seen a fantastic start to the year.
The latest figures from CML indicate that gross lending hit an all time high for January of £26.8 billion. Whilst this is down 6% on December’s figures, it is 16% up on gross lending from the same month in 2006. Furthermore, the buy-to-let sector is particularly strong and set flourish further over the coming year.
And yet there is a cloud hanging over the market in the shape of the 17,000 repossessions which took place in 2006, up 65% according to the Council of Mortgage Lenders. Industry experts are also predicting that repossessions will increase further still over the coming year, the CML forecasting a rise to 19,000 then with commentators predicting higher numbers, and banks increasing their provisions for bad debt.
So why are repossession figures rising at such a rate? According to Mark Allen, Grant Thornton’s Head of IVAs; “The majority of today’s repossessions are borne of the insolvency proceedings of 2005. Most of the time it needn’t come down to the individual loosing their home. However insolvencies are on the increase and we expect repossessions to reach 20,000 by the end of 2007”.
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Other factors increasing the level of repossessions will no doubt be the march upwards of interest rates and the rate shocks being suffered by consumers as they come off the attractive fixed rates of two or three years ago. Although the number of mortgages in arrears by 6 months fell by 8.5% during 2006 and short term (3-6 months) also fell by 6% during the year; CML anticipate that rising rates will impact on the levels of short term mortgage arrears during 2007 and expect that this will be evident in the second part of the year.
Another contributing factor could be the rising number of “Amateur Property Investors”, entering the booming buy-to-let market. Research by Moore & Blatch revealed that 21% of lenders believe that buy-to-let borrowers are more at risk of repossessions.
So what does the rise in repossessions mean for the industry? Well the press has been awash with speculation as to the impact that the huge increase in repossessions will have on the market and comparisons have been made to the early 1990’s when the property market crashed. The result of which was that property prices fell by around a third, more than 1.5 million homeowners faced negative equity and around 1 in 130 households had their properties repossessed, totalling a staggering 75,540 repossessions.
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Today’s market is significantly different to that of the 90’s. Not only has the market gained an additional 1.9 million mortgages, but it also has a greater diversity of product providers and client profiles, much lower interest rates and unemployment levels. We as a population are more comfortable with servicing our debt levels and I therefore believe that the market can withstand the current levels of repossessions.
That is not to say that these figures shouldn’t be taken seriously. Lenders and brokers need to take a long hard look at the products and advice that they provide to clients especially in terms of affordability. Where necessary, mortgage payment protection could be offered to ensure that the mortgage gets paid in the eventually that the borrower cannot work or is made redundant and that the risk of the client loosing their home is minimalised.
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