Assetz® News - 2006 repossessions up 65%

2006 repossessions up 65%

31st January 2007 |

The thriving 2006 property market caused one in 690 housebuyers to commit to mortgages beyond their means last year as the number of homes being repossessed grew by 65 per cent on the 12 months previous according to the Council of Mortgage Lenders (CML).

Some 17,000 British homes were repossessed last year but this figure was "broadly similar" to that of 2001.

Although the rate in increase in repossessions slowed towards the end of the year, the climate of higher interest rates is likely to cause more people to lose their homes over the coming three years, reports the CML.

The number of people failing to pay their mortgages is likely to rise to 19,000 this year the council predicts, followed by a steady increase to 20,000 by the end of 2008. By contrast, only 6,030 homeowners were unable to stick to their prescribed rates in 2004.

Michael Coogan, CML director general, admits that the overall arrears picture is "fairly complex" at the moment, but believes the climate of rising rates will be the main factor in future increases in homes repossessed by mortgage lenders.

"On the one hand, the wave of problems caused by previous interest rate rises has now worked through, so recently arrears levels have fallen," he said.

"On the other hand, interest rates are rising again, and payment shock may be an issue for some this year as their existing fixed or discounted deals expire."

As there is normally a prolonged delayed reaction between the announcement to rise rates and homes being repossessed, it is highly likely that the recent base rate raise to 5.25 per cent – the third in the space of just six months – will not cause problems for homeowners at least until late 2007.

Reaction from the housing market was mainly one of resigned acceptance that 2007 is unlikely to live up to the spiralling prices of the last 12 months.

Henry Pryor, founder of PrimeMove.com, said: "The effect of three interest rate rises since last August has begun to bite homeowners' pockets and with a another rise on the table next week, homeowners who have already stretched themselves financially will be increasingly struggling to make their mortgage payments and could see a corresponding increase in repossessions and arrears."

Meanwhile, David Stubbs, senior economist at the Royal Institution of Chartered Surveyors, said: "These better than expected figures show that strong economic growth during the second half of the year helped take the pressure off household finances.

"Although strong economic growth will still be a positive force for households in 2007, the RICS expects repossessions to rise further as the impact of the recent increases in interest rates takes its toll and homeowners struggle to repay their mortgage loans."

He added: "Repossessions are likely to creep up from around 17,000 last year to 19,000 this year and 20,000 next year - higher than the low of 6,030 in 2004, but still only around a quarter of the 1991 peak of 75,540. Since 1991, we have also gained an extra 1.9 million mortgages in the market."

However, even if repossessions do hit 20,000 next year, they will still only be around a quarter of the 1991 peak of 75,540, easing fears of a crash in the market.