FSA confirms continuing fall in repossessions
Published: 15 March 2011 | Author: Bernard Clarke
The Council of Mortgage Lenders welcomes the FSA’s confirmation in its new statistics published today that the number of new possessions in the fourth quarter of 2010 fell by 10% on the previous quarter to 8,246, the lowest figure for three years. FSA data is collected on a different basis to the CML, but the downward trend is consistent with our own data.
The FSA also reported that the total proportion of residential loans in arrears was unchanged on the previous quarter. While the number of new arrears cases rose by 6% on the previous quarter to 38,800, it was still 5% below the number in the fourth quarter of 2009. While there are clearly concerns that the effect of spending cuts and unemployment, together with future rate rises, may affect a greater number of households’ ability to pay their mortgages, the effect so far has been modest. And consumer research by Policis last Autumn, on behalf of the CML, suggested that consumers had a number of coping strategies as rates rise, in particular reducing discretionary spending.
Against this backdrop, the CML was surprised and disappointed that Shelter today attacked lenders for refusing to support "responsible lending" proposals, when all the evidence suggests that the vast majority of lenders in the vast majority of cases are managing and containing arrears problems successfully and responsibly, and the incidence of arrears is modest.
Shelter cites the FSA’s Mortgage Market Review analysis suggesting that approximately 17,000 repossessions between 2005 and 2010 would not have occurred because the households concerned would not have been granted a mortgage. But, as the CML pointed out last year when this analysis was published, even if the 17,000 estimate is correct (which the CML does not accept), it needs to be contextualised against an estimated 1.2 million problem-free households who would not have been granted a mortgage under the same assumptions, despite subsequently suffering no payment difficulties. So the aspiration of the many to become home owners would have been prevented to protect a small minority who have suffered a loss of their home.
It is also vital to recognise that most cases of payment difficulty are not caused by the original lending decision, irrespective of whether those borrowers would have been granted a mortgage under the FSA’s responsible lending proposals.
For example, in the Turning the Tide report produced for Shelter, Citizens Advice and Advice UK in 2009, the top reasons for difficulty were job loss, loss of income, illness and relationship breakdown, not irresponsible lending leading to over commitment.
Last year, the Policis report found that half of those falling behind had suffered job loss, with a further 13% experiencing reduced working hours or overtime, 11% reduced bonuses or commissions, and 13% reduced income from self-employment. On top of this, one in five had experienced relationship breakdown. Overwhelmingly, it is adverse life events rather than the original lending decision which tip households into difficulty. And the FSA’s risk averse approach will not stop those events happening.
CML director general Michael Coogan comments:
"The CML and members strongly support responsible lending, and it is utterly misleading of Shelter to suggest that lenders are opposed to this objective because we oppose FSA proposals which would have serious unintended consequences in the market. The concerns that lenders have relate not to the principle of requiring responsible lending, but to the detail of the rules to implement it, which as drafted in the original MMR proposals go too far and would needlessly exclude too many good borrowers.
"The fact that the repossession rate continues to fall, both as measured by the CML and as measured by the FSA, despite the scale of the problems that the economy has faced in the wake of the financial crisis, shows how seriously the lending industry takes its responsibility to make sure that repossession is a last resort."