ROOF Blog

FSA figures show 54,055 people had their properties repossessed during 2009, up from 46,945 in 2008. But there was a fall in both the number of repossessions and the number of people who were unable to keep up with their mortgage during the final quarter of the year. Around 11,800 homes were repossessed during the final three months of 2009, 15% fewer than during the previous quarter. The figures are broadly in line with ones reported by the Council of Mortgage Lenders (CML) for 2009, which showed that 46,000 people had their home repossessed during the year, the highest level since 1995. The FSA’s figures are higher than the CML ones because they include second-charge mortgages and loans advanced by lenders who are not CML members.

John Healey has extended the government’s campaign to help struggling homeowners get a grip on their finances and avoid repossession. Over 330,000 households have had help and advice with their mortgages over the past year. But with the pressure on families likely to remain high throughout 2010, starting this week the government is working with CAB to run a string of local help events in 56 repossession ‘hotspots’, so that struggling homeowners can get impartial face-to-face help and advice to keep their home. New radio and local press advertising in all 56 areas will also promote the free telephone advice line and special website to help homeowners struggling with their mortgage payments.

The number of repossessions orders taken out by mortgage lenders rose by three per cent during the third quarter of the year to 13,987, figures from the Financial Services Authority (FSA) have shown.

Despite the increase, the FSA said the number was ‘much in line’ with the average for the year as a whole and six per cent below the figure for the first quarter of the year.

The drop is likely to have been driven by interest rate cuts at the start of the year, which made mortgages more affordable, and increased government help for struggling borrowers.

The FSA said the number of borrowers who had fallen into mortgage arrears of more than 1.5 per cent of their outstanding loan had fallen for the third successive quarter, and at 46,000 was down 10 per cent on the three months between April and June and 30 per cent below the peak in the last three months of 2008.

Mortgage lenders are failing to follow rules designed to help people avoid repossession, according to a damning report published today.

The joint report by AdviceUK, Citizens Advice and Shelter found that in a third of recorded cases mortgage lenders had failed to comply with new rules – known as the ‘pre-action protocol’ – requiring them to take court action as a last resort only.

Before starting legal action, lenders should offer borrowers other options for dealing with their arrears – however, judges only verified they had done so in a handful of cases.

Published on the same day as new repossession figures are expected from the Financial Services Authority (FSA), the ‘Turning the Tide?’ report is based on research into hundreds of cases seen by advisers who give last-minute advice to people at court on the day of their repossession hearings.

Homeowners facing repossession or struggling to meet mortgage payments after losing their jobs will continue to receive extra support from the government following the pre-Budget report.

The government has said it will freeze the standard interest rate used to calculate its Support for Mortgage Interest (SMI) at 6.08 per cent for a further six months. It said the SMI scheme has benefited around 220,000 homeowners.

From April this year, the government said it would cover the monthly interest due on mortgages of up to £200,000 for borrowers who have been out of work for three months and were having difficulty meeting their payments.

Previously it only offered support to homeowners with mortgages of £100,000 or less.

The Chancellor should double the tax relief on income made from renting out a spare room when he delivers his pre-Budget report on 9 December, according to the National Landlords Association.

The NLA hopes that Alistair Darling can be persuaded to raise the tax-free ‘rent-a-room’ threshold from its current level of only £4,250 – a level it has remained at since being introduced in 1997.

Since that time, rents have more than doubled in most parts of the country, shrinking the value of the original income threshold.

The NLA is one of several organisations supporting the Raise the Roof campaign, which is lobbying for an increase to £9,000 per year.

‘Raising the tax-free threshold for live-in landlords would provide an important boost to homeowners who are facing difficulties meeting their mortgage payments,’ said Chris Norris, NLA policy manager.

‘For many, the extra rental income really could mean the difference between paying the mortgage and losing their home.’

The Council of Mortgage Lenders (CML) has cut its forecast for the number of repossessions this year to 48,000.

Having anticipated 75,000 repossessions in 2009 in last year’s housing market forecasts, the forecast had already been revised down to 65,000 in June, but is now being cut again in recognition of lender forbearance, government measures and the beneficial effect of continuing low interest rates which are helping most borrowers facing difficulty to keep their homes.

Commenting on the latest arrears data and on the new forecasts, CML director general Michael Coogan said: ‘In terms of new lending next year, we expect a modest increase.

‘But it is difficult to see the case for a dramatic upturn in the absence of significant improvement in the wider economic picture. There is a risk that public spending cuts and higher taxes could choke off recovery. So, although we have become more optimistic, we remain cautious about market prospects.’

Research by the thinktank Resolution Foundation shows low-income households – with an average of £15,800 at their disposal – are walking an increasingly precarious financial tightrope.

It has found that 24per cent of low-wage households spend more than a quarter of their monthly income on debt – twice the number from three years ago.

The study shows nearly a third of low-income households have high loan-to-value mortgages and are in negative equity, making them vulnerable to homelessness if they lose their job.

Sue Regan, chief executive of Resolution Foundation, said: ‘What’s important is not so much about when we get out of recession. It’s how sustainable the economy will be going forward if we increasingly see low-income households default on loans or lose their house.

‘If we don’t address this, it has got big economic ramifications for UK plc.’

The foundation is calling for high-street banks to involve themselves more in debt counselling when low-income households miss their first mortgage payment.

Fitch, one of the world’s most influential ratings agencies, said that the reforms proposed by the Financial Services Authority (FSA) could result in higher costs and greater inefficiencies in the mortgage market.

The rating agency said the FSA’s Mortgage Market Review ‘could have negative financial implications for mortgage customers instead of the intended benefits’.

Fitch said its concerns were specifically around the proposals for arrears management, which it said were too prescriptive and would take away ‘flexibility’.

Robbie Sargent, director in Fitch’s European structured finance operational risk group, said:

‘The assessment of borrowing capacity, and disposable income, along with the verification of income for all applications, will require a detailed methodology, and in all likelihood, the provision of some form of manual underwriting for all loan applications.

‘This will almost inevitably lengthen the mortgage application process and push up costs for the lender, which may in turn be passed on to the borrowers in the form of higher interest rates and/or product fees,’ said Sargent.

Struggling buy-to-let landlords are eating humble pie when it comes to finding tenants.

Checks and references traditionally carried out on tenants to assess their reliability in paying up are now being reversed as renters seek assurances the owner of their new home is legitimate and not on the verge of being repossessed.

David Underwood, a lettings consultant at Darwoods in St Albans, Herts, has noticed a ‘marked shift’ in emphasis:

‘Tenants have been far more interested in landlords’ backgrounds and are asking more questions about where their deposit is being held,’ he says.

It would seem that tenants’ concerns are well founded. When the Council of Mortgage Lenders (CML) started compiling buy-to-let data in the second half of 2005, only 200 investment properties were in mortgage arrears of three months or more.

By the first half of this year, this had soared to 5,400. Repossessions of investment homes also climbed, from 400 to 2,800, during the same period.