Repossession rise panic denied by lenders

Fears that mortgage lenders are pushing forward repossession actions are being denied by banks.

Mortgage lenders moved to dispel the fear of repossession presently sweeping the UK property market.

Figures released yesterday by the Financial Services Authority (FSA) reveal the number of repossession increased "significantly" in late 2007 and early 2008 – following the impact of the credit crunch.

Specifically the number of new repossessions increased by 40 per cent during the first quarter of 2008 when compared with the same period of last year, up to 9,152 new cases.

But homeowners fears should be allayed by the difficulty and expense of the process, claims Legal & General (L&G).

"Repossessions are an expensive business and should only be seen as the last resort," said Ben Thompson, L&G's mortgages director.

"There are many potential short-term solutions to plug the arrears gap that should be considered before going for repossession; including the provision of special rates, switching to interest-only, payment holidays, or agreed payment plans."

However, some buyers remain at risk. Those with the most cause for concern are buyers who made a purchase at the peak of the market during 2007, perhaps using a high loan-to-value ration.

"Borrowers that are especially vulnerable at the moment are ones with impaired credit histories or those with only small amounts of equity," added Mr Thompson.

"We urge all lenders to take the long-term view when it comes to borrowers such as these and consider that the affordability squeeze is only temporary."

The FSA also warns, while the number of new cases of loans in arrears has stayed constant at around 54,000 each quarter, the total number of loans in arrears grew by 15 per cent in the year to the first quarter of 2008.

The total now stands at 302,000, accounting for 2.44 per cent of total loan book balances. This indicates that borrowers in arrears are staying in arrears for longer periods of time than previously.

Yet the Citizens Advice Bureau (CAB) – which recorded 57,000 problems about mortgage and secured loan arrears last year, an 11 per cent increase on the previous year – argues lenders are not doing all they can.

"Our 2007 evidence report shows in some cases lenders have taken borrowers to court without exploring all the other options available to address the arrears resulting in excessive costs, stress and worry for borrowers," explained Sue Edwards, head of consumer policy at CAB.

"This could be avoided if lenders had acted in accordance with the FSA rules that govern arrears management practices.

"Bureaux also see cases where it appears that the lender had taken little or no account of the borrower's ability to repay the mortgage."

Chris O'Toole