Arrears and possessions in 2008
20 Feb 09
New statistics were published today by the Council of Mortgage Lenders on mortgage arrears and possessions. Unsurprisingly, full year figures for 2008 show a sharp rise on 2007, but many steps are being taken to help borrowers facing difficulty.
- 5,000 fewer repossessions than forecast in 2008
- 40,000 repossessions in the year - 1 in 290 mortgages
- 10,400 repossessions in the fourth quarter - 1 in 1,100 mortgages
- 1 in 64 mortgages in arrears of 2.5% or more
- 1 in 53 mortgages in arrears of three months or more (inflated by lower interest rates)
- 75,000 repossessions forecast for 2009 remains unchanged.
Around 10,400 properties were taken into possession by first charge mortgage lenders in the fourth quarter of 2008, down from 11,100 in the previous quarter but up from 6,900 in the fourth quarter of 2007, according to the Council of Mortgage Lenders. The total number of first-charge repossessions in the year was an estimated 40,000. This was 5,000 lower than the CML's original forecast for the year.
The fact that there were 11% fewer repossessions than expected, despite a worsening economy and rising unemployment, demonstrates that mortgage lenders are making strenuous efforts to ensure that repossession really is a last resort. It is important to recognise that repossessions include a proportion of abandoned properties and property fraud. They also include buy-to-let repossessions, as well as home-owner repossessions. In the vast majority of cases where home-owners are committed to working with their lender to keep their home, this outcome is successfully achieved.
At the end of 2008, around 182,600 mortgages - or 1.57% of the total - had accumulated arrears equivalent to 2.5% or more of the outstanding balance - for example, £2,500 or more on a £100,000 balance (a £97,500 mortgage plus £2,500 arrears). This compares with 1.29% at the end of the third quarter of 2008, and 1.08% at the end of 2007.
On a "number of months" basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year, and up from 127,500 at the end of 2007. However, the big reduction in mortgage rates experienced in 2008 was a significant influence on the rise in the number of arrears cases measured on a "number of months" basis - as the same given sum of arrears represents a higher number of months payments as interest rates fall (see note to editors).
The vast majority of people who face temporary difficulties successfully work with their lender to stay in their homes, and get their mortgage back on track over time. Where borrowers contact their lender early, maintain good communication and are committed to paying what they can and resolving their arrears, lenders work hard to help wherever the household's future prospects look feasible.
In addition, a range of new measures from government is beginning to help some households whose problems may be too deep-rooted for lender forbearance alone to resolve. These include:
- The changes to Income Support for Mortgage Interest, enabling eligible claimants to start receiving the benefit after 3 months rather than the 9 months they have previously had to wait.
- The government's mortgage rescue scheme, enabling housing associations either to take a share in the equity or to buy the property outright and rent it back to the former owner, which is being delivered through local authorities. This is for "priority need" households such as people with dependant children, the elderly, or those with a disability.
- Local initiatives from some local authorities, which vary considerably in type and scope, but are designed to give local home owners a breathing space through short term difficulties.
- The imminent Home-owner Mortgage Support Scheme, which will hopefully make it easier for lenders to show forbearance to more borrowers and for longer by the government guaranteeing part of the increased risk lenders face when they allow borrowers to under-pay.
All these initiatives are helpful, but all have limitations. Eligibility criteria vary considerably, and it seems likely there will be an increased demand for the services of advice agencies, whose work is invaluable in helping people with more complex problems, especially those with other secured loans and multiple debts in addition to their main mortgage. The capacity to deliver this debt support in a timely way remains an issue which needs to be resolved.
CML director general Michael Coogan commented:
"Despite the upward pressure on mortgage arrears and repossessions arising from the problems in the economy and rising unemployment, both lenders and government are continuing to find more ways to help more people stay in their homes.
"But there seems to be a sharp rise in cases where borrowers are handing back their keys or abandoning their properties. We strongly urge borrowers to contact their lender and work with them before taking this step, as there may be other solutions. Borrowers are still liable for their debt, even if they leave the property, so working through their problems is much more likely to be in their best interests."
"We know the plethora of schemes and initiatives is daunting, and we are working closely with government and advice agencies to try to simplify the information available, and ensure that those borrowers who may qualify for help get access to the information and advice that they need at the right time."
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 11.7 million mortgages in the UK, with loans worth over £1.2 trillion.
2. On arrears, the effect of "percentage of balance" versus "number of months" as a measure is best illustrated by an example:
A borrower with a £100,000 interest-only mortgage a year ago might have been paying a rate of around 7.5% at the beginning of 2008, making their contractual monthly payment £625. But by the end of 2008, the same borrower might have seen their rate fall to 4.5%, with their contractual payment only £375. If this borrower fell £1,500 behind on their mortgage, at the beginning of 2008 this would have been equalto 2.4 months arrears. But by the end of 2008, £1,500 would equate to 4 months arrears. However, using the “percentage of balance” figure, the borrower would be 1.5% in arrears in either period.
3. CML arrears and possessions statistics for Q1 2009 will be published on 15 May 2009.
- Contact details
- Name: Sue Anderson
- Tel: 020 7438 8924
- Name: Bernard Clarke
- Tel: 020 7438 8923
- Name: Jayne Chichester
- Tel: 0207438 8922