Home Seizures By UK Lenders Hit 12-Year High

Source : The Business Times, August 25, 2008

Repossession orders in H1 jump 48% as price slide continues

HOME repossessions have surged to a 12-year high in the UK, as lenders take a tough line on debt-ridden owners. And the outlook for the rest of the year looks bleak, as house prices continue to fall.

Figures released by the Council of Mortgage Lenders (CML) show the number of home owners subject to repossession orders in the first half of the year was up 48 per cent to 18,900.

As property economist Kelvin Davidson of consultancy Capital Economics said: 'There's no denying the figures will rise further. We are talking pretty big falls in property prices.'

The news has triggered criticism in some corners of a harsh stance taken by lenders, and comes amid a warning that repossessions for full-year 2008 are likely to hit 45,000, up from 26,200 last year.

CML has said the figures are no surprise but stresses the 45,000 statistic is small relative to the 11.74 million mortgages in the UK worth more than £1.2 trillion (S$3.1 trillion). However, it noted that a dramatic reduction in credit availability is taking a toll on borrowers, as it tends to rule out remortgaging.

At the same time, credit ratings agency Standard & Poor's estimates that one in six home owners in Britain will be in negative equity by the end of 2009 if house prices continue to fall.

Mr Davidson said the figures have been largely anticipated, but the rate of acceleration seems to be much faster than expected. 'I guess in terms of risk, everything has moved much faster than what people thought,' he said.

Lenders have been aggressive in seeking recourse against errant home owners, with Ministry of Justice figures showing the courts made 28,658 repossession orders in England and Wales in the second quarter of 2008, an increase of 24 per cent from the same period last year.

Housing charity Shelter has accused lenders of using the courts as the first rather than last resort.

The charity's chief executive Adam Sampson has dubbed the rise in repossessions 'simply staggering'.

'The real horror is that struggling home owners today have less protection than in the 1990s, but most people don't even realise it,' he said.

The charity has seen an increase in the number of people fearful of losing their homes. 'They are being punished by rising household bills, escalating fuel charges and food prices that are going through the roof,' Mr Davidson said.

He urged lenders to be more flexible. 'They must play their part and ensure they look at all options before rushing to court. They must use repossession as the last rather than first option. The government needs to show it really is on people's side when they face the threat of repossession.'

According to the UK Financial Services Authority, lenders have largely complied with standards for treating customers in arrears. It has, however, voiced concern that some specialist lenders are more prone to resort to court action.

Mortgage lending, meanwhile, continues to remain subdued in Britain. According to CML, gross mortgage lending totalled £24.8 billion in July, a 27 per cent drop from the same month last year.