CML confirms repossessions are last resort and in line with forecasts

21 Nov 08

The Council of Mortgage Lenders today published quarterly data and analysis on mortgage arrears and repossessions for the first time [see attached “The CML's quarterly arrears and possessions data explained], having previously published data on a half-yearly basis. Quarterly data is available from the start of 2008.

The CML reports that 1.44% of mortgages were at least three months in arrears as at the end of September 2008. This was up from 1.33% at the end of June. The number of cases in arrears at the end of September was 168,000, 8% higher than the 155,600 at the end of June. Unsurprisingly in a worsening economy, the number of households in arrears by the end of the year is likely to exceed the previous forecast of 170,000.

The CML also reports that 0.1% of all mortgaged properties were repossessed in the third quarter of 2008, up slightly from 0.09% in the second quarter. By number, this equates to 11,300, 12% higher than the 10,100 in the second quarter. The CML continues to expect the total number of repossessions this year to be around 45,000, as forecast in October 2007.

Buy-to-let mortgages have in the past shown better performance than the overall market in terms of payment profile. But in the third quarter the payment profile of buy-to-let lending has worsened more rapidly than the market as a whole. Reasons include falling rents and an over-supply of rental property in some areas, resulting in some landlords being unable to let their property or achieve high enough rents to support their borrowing commitments. Fraud is also likely to have been a contributory factor. In addition, in line with the rest of the market, it is more difficult to sell as an exit strategy, while the availability of new buy-to-let mortgage finance has contracted and criteria have tightened.

At the end of September, 1.58% of buy-to-let loans were in arrears (up from 1.10% at the end of June), compared with 1.44% of all mortgages. The number of buy-to-let mortgages taken into possession in the third quarter was 900, the same as in the first and second quarters of the year, representing 0.08% of all buy-to-let mortgages (compared with 0.1% across the mortgage market as a whole). On the basis of the arrears experience, it seems this lower repossession rate in the buy-to-let sector is unlikely to be maintained looking ahead. However, a range of factors will affect the number of buy-to-let repossessions, including the extent to which buy-to-let lenders appoint receivers of rent as an alternative to repossession. This may be a preferable strategy in many cases where tenants are paying their rent but the landlord is not paying the mortgage.

Commenting on the latest data, CML director general Michael Coogan said:

"The CML and lenders are absolutely committed to ensuring that repossession is only ever a last resort. Most borrowers who face payment problems successfully keep their home by working with their lender - anyone worried about mortgage payments should contact their lender at the earliest opportunity, before arrears start to build up.
"The government has taken some helpful steps towards targeted support for some of the most vulnerable households, but with a worsening economy now needs to make it a priority to go further. Increased help with housing costs is needed for a wider range of borrowers facing unforeseen repayment difficulties where there would otherwise be little prospect of early improvement. Next week's pre-Budget report should concentrate on making much more assistance with mortgage payments available for people whose income is reduced, as help is currently far too limited.
"Looking ahead, conditions in the wider economy suggest a worsening picture for mortgage arrears, however carefully lenders handle their treatment of borrowers in difficulty. But while lenders cannot change the underlying causes of financial difficulty, such as unemployment, they can make sure that their response to borrowers is constructive and seeks to avoid repossession wherever other solutions can be found.
"That is what lenders are doing, meaning that the number of repossessions is likely to be contained to the levels we forecast at the beginning of the year, despite the worsening in economic and funding conditions through the year. We and our members are continuing to look at every possible way of minimising repossessions, consistent with considerations of the borrower's financial prospects."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 98% of all residential mortgage lending in the UK. There are 11.74 million mortgages in the UK, with loans worth over £1.2 trillion.

2. In addition to the established tables AP1 (mortgage arrears, by number of months in arrears), AP2 (mortgage arrears, by percentage of total balance), AP4 (mortgage possessions), and AP5 (buy-to-let mortgage arrears and possessions), there are also two new tables for ease of use, AP7 (side-by-side presentation of total market arrears (including buy-to-let), with buy-to-let arrears, and AP8 (side-by-side presentation of total market possessions (including buy-to-let), with buy-to-let possessions.

3. The Ministry of Justice data on court activity for repossession is available on their website. The CML’s data note attached explains the differences between the MoJ, CML and FSA data.

4. The CML, lenders, government, regulators and consumer advice agencies have all been working hard in 2008 to improve help for borrowers facing difficulty. This work continues. Minimising repossessions is the aim, both to help struggling borrowers and to reduce the negative impact that a continuing flow of repossessions has on the wider housing market. So far this year, key actions have included:

Major commitments from the CML and lenders to Government about the sympathetic and positive handling of home-owners’ mortgage problems. All lenders will:
- Use reasonable efforts to reach agreement with customers about how they can repay any arrears
- Liaise with debt advisers if the customer wants this
- Be reasonable about agreeing a practical payment plan for the customer and the amount of time over which the customer can repay any shortfall
- Consider allowing the customer to sell the property if no reasonable payment arrangement can be made rather than take possession
- Repossess the property only where all other reasonable steps to resolve the position have failed
- Not try to sell an owner-occupier’s property without first obtaining a court order for possession (except where the property is vacant or abandoned, in cases of fraud, or where the sale occurs with the borrower’s informed consent).
Joint lobbying by advice agencies and the CML on regulation of sale and leaseback companies, a subsequent review and recommendation by the OFT that the FSA should regulate such companies, and a Government announcement that it accepted this recommendation.
Joint lobbying by advice agencies and the CML on improvements to state support to help home-owners with mortgage problems, resulting in the Government’s announcement of welcome improvements to the Income Support for Mortgage Interest Scheme to –
- Reduce the waiting period for eligible claims from 39 weeks to 13 weeks, to take effect for new claims from January
- Increase the maximum eligible mortgage size from £100,000 to £175,000 from January.
The new pre-action protocol which took effect on 19 November in the courts (in England and Wales) outlining the expectations of how lenders will already have approached arrears cases before they come to court (reflecting the FSA’s rules on the handling of arrears in chapter 13 of the Mortgage Conduct of Business Rules).
The CML’s industry guidance to lenders outlining practical steps to help achieve compliance with both MCOB 13 and Treating Customers Fairly principles of the handling of arrears.
Increased liaison between lenders and advice agencies, reflecting an increasing impetus to ensure that borrowers have access to good advice, especially where multiple debts are involved.
An increased flow of consumer information from various sources, including the FSA’s moneymadeclear site, the CML’s consumer information, the Money Advice Trust and many more, to try to encourage borrowers facing potential difficulty to take action early. The CML also produced a leaflet for MPs to help them advise constituents.
Development work, supported by the mortgage lending industry, towards a new Government-backed mortgage rescue programme, delivered through housing associations, targeting up to 6,000 vulnerable households over two years who would otherwise qualify for subsequent housing support after repossession, expected to launch soon.
Innovative schemes emerging at local level, such as the Wakefield District Council scheme that is helping to avert possessions by funding the “gap” before ISMI cuts in for households who will qualify.