Caroline Havers

Salans

The significant increase in mortgage repossessions in quarter one of 2005 has been reflected in the volume of instructions received from clients. However, we should not lose sight of the fact that this increase is from a 20-year low. The Council of Mortgage Lenders (CML) forecast for the number of repossessions in 2005 is 8350, which is 83% lower than the number of repossessions 10 years ago at 49,410 and 81% lower than fifteen years ago at 43,890.

The increase is indicative of the effect of the increase in the interest rates last year, in addition to the high levels of unsecured personal debt.

Lenders should review their arrears and repossessions processes and their external panels to ensure that both can deal with an increase in volume. For many lenders MCOB 13 (arrears and repossessions) has been a chapter of the Financial Services Authority (FSA) handbook that they have been able to ignore in the past, but no longer. With the focus on treating customers fairly, how will the FSA expect lenders to translate these principles into this area of their businesses?

Ray Hugill

Mortgage Express

Before detailing the possible reasons for the increase in properties being taken into possession during quarter one of 2005, it is important to remember that while repossessions are increasing, they still represent only a fraction of the problem witnessed in the early 90s. Lenders genuinely take possession only as a last resort.

However, one reason for the increase is that we are beginning to see some real effects of the interest rate rises in 2004 on general affordability for a small number of borrowers. Arrears levels have increased over the past year, as has the overall average level of debt arising from personal loans, credit card arrangements and so on.

It is expected that a proportion of these will be repossessed, but figures show that arrears levels and repossessions are well within expectations for this type of business.

Dev Malle

Pink Home Loans

What we need to remember here is that, while it seems to be a big percentage increase, it is from a very low starting point so the actual figures for repossessions remain low. However, the overall trend is important, as it will have an impact on housing demand in the future. If the number of repossessions continues to increase then it would be a concern for the industry as increasing levels of repossessions will have a negative impact on consumer confidence in the housing market.

Another impact may potentially cause lenders to react by moving from prudent lending to very strict lending due to the increased emphasis on responsible lending and to protect their credit position.

It would be interesting to see a breakdown between buy-to-let and residential properties within the repossession figures, and also a breakdown between self-cert, non-conforming and prime business.

As an industry, many lenders have taken a positive response to repossessions and many people experiencing financial difficulties are involved in debt counselling. This tends to be aimed at the sub-prime end of the market so it would be useful to see how many repossessions occur in this sector of the market.

Alan Smith

London & European

In light of this news, lenders should be aware of the huge financial risk they are running as they hit the bottom of the cycle. Should the rise in repossessions ever reach the 75,000 plus figure of 1991, with an average loan size of £100,000 and with 20% of the outstanding balance irrecoverable per loan, the potential cost of title problems arising from repossessions to the lenders would be approximately £1.5bn a year.

In a buoyant economy the larger lenders have been prepared to compromise security and we have seen a trend towards self-insurance. In light of the news from the Department for Constitutional Affairs (DCA) this is a risky hand for lenders to play. According to the Law Society, one in five properties has some form of defect in its title and borrower default is the main trigger for the discovery of most title insurance claims.

The news also comes at the same time as Countrywide issued its third profits warning in seven months yesterday.

All of this, together with the CML forecasts that the number of home owners struggling with mortgage arrears will jump by more than 20% next year and around one million people currently have debt issues according to the Citizens’ Advice Bureau, further emphasises the need for lender action. We would strongly urge lenders to seek specialist advice on their title insurance arrangements.

Peter Beaumont

Mortgages plc

Any statistic which shows an upward trend in either arrears or possessions has to be a cause for concern, but it is important to look behind the headlines to fully understand what trends are actually taking place.

The statistics issued by the DCA show how many possession proceedings have been issued and how many orders for possession have been made by the courts. However, many of the orders made will not have been enforced and they do not reflect how many properties have been taken into possession.

The CML’s published figures for arrears, as at 31 January 2005, show that levels have held steady during the past couple of years. If anything, they have fallen slightly, which tends to suggest there is not a major underlying problem. Our own statistics are not showing an upward trend in either arrears or possessions.

We all know levels of consumer debt have increased, and rising interest rates and a downturn in economic conditions can cause debt problems. I think it is too early for these statistics to cause major panic, but they should act as an early warning system for the whole industry to watch arrears and possessions trends very carefully during the coming months.