When the Council of Mortgage Lenders (CML) recently announced the first quarter repossession figures there was both good and bad news.
The bad news is that 9,100 properties were repossessed in Q1, which was a 15% increase on Q4 2010.
However, the good news (if any news relating to repossessions can be described as ‘good’) is that this represents a 10% decrease on the same period a year ago.
In February, HML produced the UKs first regionally-based repossessions forecast and it was our view that the total number of repossessions in 2011 would be just over 33,000.
This forecast was not as pessimistic as the CML’s, which predicted (and still does) that total repossessions this year will hit 40,000.
If the trend of the first quarter continues throughout the year, then the total number of repossessions will be 32,670, which is remarkably close to HML’s forecast.
So, why the difference between the two forecasts and which is correct?
The answer to the last question is that only time will tell, but I suspect the CML may revise its forecast downwards in due course. Perhaps it is better to play safe this early in the year.
However, in fairness to the CML, forecasting is far from being a precise science and there are plenty of factors which could, and probably will, affect both our forecasts; hence the difference between the two.
One of the key factors is the timing of an increase in interest rates.
At the start of this year, the view was that a rate rise was quite possible in May, but that hasn’t happened and shifting economic data makes the timing of any rise increasingly uncertain.
An interest rate hike will, of course, hit hard-pressed homeowners and lenders’ attitudes towards forbearance may have altered following the FSA’s recent guidance consultation on the subject.
In its consultation paper published in May, the FSA said: “We are concerned that where support or forbearance is provided without due care and consideration of the customer’s circumstances, it can also act against the customer’s best interests and place them in a worse position than they would have been otherwise, in some cases leading to the mortgage moving into a long-term unsustainable position. Such an outcome is neither in the interest of the firm or the customer.”
The FSA document asks lenders to “review practices in the provision of forbearance provided to assist customers and be mindful of the provisions of Principle 8 (Conflicts of Interest).
“This guidance is looking to firms to ensure that customers are not placed in a worse position than they would have been otherwise; and the firm either avoids the mortgage moving into an unsustainable position or continues to work with the customer to bring the mortgage back onto sustainable terms within a reasonable timeframe.”
The truth is that lenders are stuck between a rock and a hard place.
Reviewing their practices may result in them repossessing more properties. But not addressing the issues identified by the FSA could simply store up problems for the future.
Either way, there are potential consequences and this is an issue which will be debated in many board rooms throughout the country.
There are also a whole host of other factors, which will directly impact on borrowers’ ability to keep up with their mortgage payments.
Continuing public sector job cuts, resulting from the government’s desire to fix the deficit, will make life very difficult for tens of thousands of households. The increasing cost of fuel, transport and basic foodstuffs will put pressure on household budgets.
And the two-thirds of all borrowers on variable rate mortgage deals will feel the effects of any rate increase immediately.
We know what factors contribute to rising arrears and possessions; the challenge is to know just how quickly those factors will feed through into the repossession statistics.
A final point, and perhaps of greatest interest to mortgage advisers, is the way in which repossessions will vary from region to region.
HML believes that Northern Ireland will be the worst hit region, with the North East, Scotland, Wales, the West Midlands and London all having a higher rate of repossessions than the national average this year. The least affected region will be the South West.
Whether this year’s repossessions figures end up being 32,670 or 40,000, both the CML and HML are in agreement that the final number will be too high.
In 2004, the annual repossessions figure was 8,200 and, if you wind the clock back to 1979, it was just 2,910.
Wouldn’t it be great if we could get back to those types of figures in the not too distant future?
