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Why home repossessions will rise 20%

Rebecca Rutt
by Lovemoney Staff Rebecca Rutt on 09 August 2012  |  Comments 12 comments

Numbers of home repossessions are at an 18-month low, but experts predict this figure will soon start to rise.

Why home repossessions will rise 20%

Mortgage repossessions fell to 8,500, from 9,600 in the second quarter of the year, the lowest number since the final quarter of 2010.

The drop has happened mainly because of low interest rates and a Government benefit available for those struggling to pay their mortgages.

Despite these figures it’s not all good news. The Council of Mortgage Lenders (CML) hasn’t changed its forecast for the whole of the year, which predicts a rise of 20% in repossessions from 2011.

This is because it says the dire economic state we’re experiencing will continue and lead to greater numbers of homeowners struggling to make their monthly repayments.

Mortgage repossessions

For the whole of 2012, the CML has predicted the number of repossessions to hit 45,000 and this hasn’t changed despite the latest results.

This is down to the poor forecasts for growth coming from the Bank of England, combined with the Government’s planned benefit changes, coming into force at the beginning of next year, which mean less people will be entitled to help if they can’t pay their mortgages.

The number of mortgages in arrears didn’t change much and there were 157,400 with arrears of 2.5% or more which is only slightly lower than the 157,800 at the end of the first quarter of the year.

Support for Mortgage Interest

One of the major reasons more houses haven’t been repossessed in the past few years is because of the help available from the Government in the form of Support for Mortgage Interest (SMI).

This benefit helps those who have trouble paying their mortgage and has ensured nearly 250,000 people have remained in their homes since 2008.

However, changes are coming into place next year which mean not as many people will be able to claim the benefit.

Benefit changes

This benefit is paid directly to lenders and is available for mortgage borrowers who get income-related benefits such as Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, and Pension Credit.

It provides help only with mortgage interest, not capital repayments, and is paid at a standard rate (currently 3.63% a year).

SMI covers the interest payments on up to £200,000 of a loan and kicks in after an initial 13-week period. But from next year homeowners will have to wait a whopping 39-weeks before getting the benefit.

The CML has urged the Government to re-think this decision as it says economic and employment uncertainty combined with the effect on households of higher living costs and squeezed incomes means homeowners will continue to struggle to pay their mortgages for the foreseeable future.

What do you think? Is this the calm before the repossession storm? Should the Government ditch its planned revamp of the SMI scheme? Let us know your thoughts in the comment box below.

More on homes and mortgages:

Threatened with repossession? What should you do

How to get out of negative equity

How to buy a repossessed property

The true cost of a month's mortgage payment holiday


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Comments (12)

  • eMoov
    Love rating 2
    eMoov said

    A major reason for such a fall in repossessions is that the Government has issued new rules to lenders to ensure that they 'exhaust all reasonable endeavours' to assist home owners that are having problems meeting their mortgage payments. If a lender is unable to demonstrate this at court, the judge will look favourably on the borrower and any application to remain in the property and so, unsurprisingly, the banks are toeing the line.

    Report on 10 August 2012  |  Love thisLove  1 love
  • yocoxy
    Love rating 132
    yocoxy said

    Why should the government step in after only 13 weeks? I've got I inurance that pays out for the first 52.. Why should my tax be used to pay someone else's mortgage when I'm paying insurance to avoid making such a claim myself?

    Rebecca, you state that the two main reasons for the fall in repossessions are low interest rates and Government benefits. Neither has changed in the period you analysed, so how are they responsible for a change in the number of repossessions?

    I guess the real story is that they will rise when the benefits rule changes. Primarily due to mortgage holders not protecting themselves in that critical 39 week period. As you mention, this may encourage lenders to try to negotiate during this period.

    I'd reccomend that borrowers take out mortgage protection insurance. Yep PPI. This is exactly want it was intended for, prior to all the mis-selling and sneaking it on people without asking.

    Report on 13 August 2012  |  Love thisLove  0 loves
  • markj9035
    Love rating 19
    markj9035 said

    I suggest people stop bleating on about a recession and start being a little more positive for a change. I've said all along that due to the media, including the odd article such as this, that the recession would inevitably be a self fulfilling prophecy and low and behold, surprise, surprise, people believe we're suffering.

    Cheer up for God's sake and start living again people. Life is far too short to get stressed about money.

    Report on 13 August 2012  |  Love thisLove  2 loves
  • Perry525
    Love rating 25
    Perry525 said

    From next April, the amount of benefit and council tax relief will collapse for many part time workers, this will result in many retail jobs disappearing as people have less to spend, with a wider effect on many middle class families.

    Next year will bring home to many people the need for a full time job to maintain their living standards.

    I often wonder how we managed to arrive at a position where so many people who have chosen to work as little as one hour a week, have maintained a decent lifestyle at the expense of the tax payer, without a public outcry.

    Report on 13 August 2012  |  Love thisLove  1 love
  • nickpike
    Love rating 270
    nickpike said

    Why are taxpayers paying other people's mortgages?

    Report on 13 August 2012  |  Love thisLove  0 loves
  • krustallos
    Love rating 39
    krustallos said

    @markj9035 said Cheer up for God's sake and start living again people. Life is far too short to get stressed about money.

    Quite right. They should think of repossession not as losing a home but as gaining an opportunity to go camping.

    Report on 13 August 2012  |  Love thisLove  1 love
  • krustallos
    Love rating 39
    krustallos said

    Why should the government step in after only 13 weeks? I've got I inurance that pays out for the first 52.

    Have you ever tried claiming on one of those policies?

    Report on 13 August 2012  |  Love thisLove  0 loves
  • Arblaster
    Love rating 41
    Arblaster said

    Why are taxpayers paying other people's mortgages?

    They're not. Benefit covers only the interest on the mortgage. It does not pay the capital, nor any life assurance premiums.

    Report on 14 August 2012  |  Love thisLove  0 loves
  • markj9035
    Love rating 19
    markj9035 said

    @ Krustallos: Excuse my apparent flippancy, it wasn't quite meant like that. More a dig at the doom and gloom mongers. I firmly believe there's a massive element of unnecessary consumerism and psychology behind this current recession.

    As for repossessions, there isn't a a judge in the land that would kick someone out of there house if they are making regular, affordable, payments to their mortgage company. It's when people give up that they lose their homes.

    Report on 15 August 2012  |  Love thisLove  0 loves
  • yocoxy
    Love rating 132
    yocoxy said

    @krustallos. Yes I have. I was out of work for six months and after the initial 6 week grace period, they paid the interest. The only problem I had was that the unemployment office would only sign the form if I registered unemployed and accepted the benefits that I didn't need or want.

    "You've got to claim"

    "I've got fifty grand in the bank"

    "it doesn't matter, JSA is not means tested"

    "I don't need or want the money, just the form signed"

    "I can't sign the form if you don't register unemployed and if you're registered you get JSA. We can also help with transport costs to get to interviews"

    Ludicrous.

    I'm still thinking I may claim mis-selling of the policy though. We all know that banks are evil and PPI is wrong. :-).

    I've got friends in the industry who tell me that they are paying PPi compensation to those that have claimed on the policy that they didn't want or need!

    Report on 20 August 2012  |  Love thisLove  0 loves
  • Mally
    Love rating 1
    Mally said

    Krustallos, my wife had a redundancy policy and it was a godsend when she was made redundant at the start of the recession.

    Yes, she had to be on JSA and she had to keep a solid record of all her efforts to find work. This was no problem as she was actively looking everyday and had the time to carry out the tasks required.

    The policy paid out for a year and helped us through a difficult year.

    I have spoken to a several clients over the years who "couldn't be bothered" to complete what they felt were onerous forms to claim on were policies, recommended specifically for their needs. Of course an insurer is going to require a lot of detail to pay out what can be a large amount of money. In my wife's case she received £12000 over the 52 week period.

    In my opinion it should be compulsory for anyone taking out a mortgage to have suitable protection to protect them against loss of income. If this is not felt to be affordability maybe they should be looking at buying cheaper home that they can afford to protect.

    Report on 20 August 2012  |  Love thisLove  0 loves
  • poppasmurf
    Love rating 31
    poppasmurf said

    yocoxy

    You would get JSA for the first 26 weeks 6 months.

    You would then have to reapply for JSA but this time it is"means tested".

    So no you wouldn't have gotten it then as you would be well over the maximum in savings of £16K.

    But yes I see what you mean.

    Report on 17 September 2012  |  Love thisLove  0 loves

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