As we move towards a seemingly inevitable recession, even the Bank of England’s 1.5% rate cut last month might not have the effect that it once would have. The facts seem to be that repossessions are on the rise, house prices will continue to fall and many more households will be faced with the spectre of negative equity. Hardly a positive scorecard for the situation and one that intermediaries and advisers will observe with a fair degree of concern.
This somewhat bruising outlook has come from a series of recent reports. The FSA revealed that the numbers of homeowners losing their homes in the second quarter this year rose by 71%, compared to the same period in 2007. The actual figures were 11,054 repossessed homes by lenders, in comparison to 6476 in the previous year – total repossessions for 2008 are expected to be about the 40,000 mark, which is under 1% of all mortgages outstanding, but clearly on the rise.
The Bank of England’s Financial Stability Report warned that a continuation of the housing slump could mean more than 1 million households would be in negative equity. The Bank predicted that should house prices fall by 15% from their October 2007 peak, one in 10 homeowners would have an outstanding mortgage more than the value of their home.
Those who are looking for positives in terms of a house price turnaround will not have found them from the Centre for Economics and Business Research (CEBR), which has predicted that house prices will not recover to 2007 levels until 2013.
However, it has predicted a bottoming out of house prices by this time next year. This is, of course, a delicate situation and intermediaries are likely to see an increase in the number of clients who are experiencing difficulties in paying their mortgage.
While repossessions have increased, it is important to realise that these numbers have moved from a particularly low base, with repossession of a property the last step in the process, and intermediaries would do well to help their clients long before this stage is reached. Having the trust of the client should place intermediaries in a prime position to help and advise those who may be concerned about their future ability to pay their mortgage or are already missing payments.
We continue to hear much talk about responsible lending and the first port of call for any worried client should be the existing lender. It has not been my experience, despite recent media speculation, that lenders move to take possession at double-quick speed – after all, it is absolutely in their interests that borrowers continue to meet their mortgage obligations.
Of course, no remedies can be put in place without regular communication and most lenders recognise that the best way to deal with borrowers facing arrears is through early contact. Knowing a problem exists at the outset will help all parties tackle the root cause of the financial difficulty and help deliver optimal solutions.
All regulated firms operate within the FSA principle of Treating Customers Fairly and intermediaries and their clients should expect a number of support systems to be put into action. For example, sensible lenders should provide clients with a personal budget planner, which helps review current incomings and outgoings and can help prioritise debts. There is also the option to see an in-house mortgage counsellor and for those who have lost jobs, a career-assist programme is available to help customers quickly back into re-employment.
There are also options available specific to the mortgage itself: for example, the potential to extend the term, the capitalisation of arrears, payment concession, help with remortgage finance, moving to interest-only, and changing the date of payment or payment method. These options will not be available to all borrowers however and again it comes down to an individual assessment and a focus on delivering a solution that suits all parties.
Clients will expect their brokers to advise them through a worrying time; they will also be hoping their lender offers a sympathetic and forthright approach to helping them. It seems inevitable that repossessions will rise. However, it is important that the borrower, intermediary and lender work together to minimise these instances. n
Rob Clifford is chief executive at Mortgage Force
