" Repossessions rise by 71% | Money | guardian.co.uk

Home repossessions and arrears rise as borrowers struggle

•Repossessions up 71% year-on-year
•Number of borrowers in arrears grows

The number of properties repossessed by lenders in the second quarter of this year was up 71% on the same period last year, figures showed today.

Rising household bills and increasing mortgage costs resulted in 11,054 new possessions cases in the three months between April and June this year, compared with just 6,476 in the same quarter of 2007.

The figures, from the Financial Services Authority, also showed an increase in the number of homeowners who had fallen behind on mortgage repayments.

The City watchdog said while the number of new arrears cases had stayed constant, at around 54,000 each quarter since early 2007, consumers were increasingly struggling to clear their arrears. Consequently the total number of accounts in arrears was rising.

At the end of June there were 312,000 loan accounts in arrears, an increase of 3% on the first three months of this year and 16% up on a year earlier.

Over the past year borrowers have been hit by a double whammy of rising mortgage costs and inflation.

Borrowers coming to the end of cheap fixed-rate deals have seen repayments jump, with the credit crunch forcing lenders to reprice deals upwards.

Some have stopped lending to borrowers with big mortgages, leaving those who took out large loans with lenders like Northern Rock unable to move away from high standard variable rate (SVR) mortgages.

The figures still represent a small fraction of the mortgage market, with just over 2% of outstanding mortgages in arrears or possession. However the rising number of people unable to catch up with repayments they have missed suggests repossession rates will continue to rise.

Last year, the Council of Mortgage Lenders predicted the number of homes repossessed this year would rise by 50%, to 45,000, and the FSA's figures for the first half of the year are broadly in line with that, showing just over 20,000 properties were repossessed.

However recent economic news has been more gloomy than anticipated, and rising job losses could push many more homeowners than expected into difficulties.

The homelessness charity Crisis said the repossession figures showed the economic downturn had become ""a human crisis"" and that thousands of people were now at risk of homelessness.

Its chief executive, Leslie Morphy, said it was not just homeowners who would be falling victim to repossession, but tenants of buy-to-let landlords were also losing their homes.

""We are calling for a widening of the safety net of advice and temporary accommodation to cover all those at risk of repossession and homelessness – a genuine safety net for all.

""This must be urgently addressed as the economic crisis takes its toll.""

Lending squeeze

The FSA survey, which covers buy-to-let loans as well as residential mortgages, highlighted how the credit crunch has changed lending practices among the banks and building societies.

It said while 15% of new lending in early 2007 was for more than 90% of a property's value, that figure had fallen to 10% in the first half of this year.

The number of loans above 90% loan to value (LTV) and at high income multiples, defined as a single person borrowing more than 3.5 times salary or a couple borrowing 2.75 times, also dropped.

In the second quarter of last year, 9.2% of mortgages were high income multiple deals above 90% LTV, a figure that had fallen to 7% in the same period this year.

Loans to borrowers with a poor credit history also fell, from 3.4% of new lending in the second quarter of 2007, to 2.1% in the same period this year.

Since the period covered by the survey lenders have continued to focus on reducing the number of high loan to value deals they offer, making life increasingly difficult for first-time buyers.

Many have withdrawn deals above 90% and added substantially to the cost of loans above 75% to deter would-be borrowers.

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Repossessions rise by 71%

This article was first published on guardian.co.uk on Tuesday October 28 2008. It was last updated at 15.32 on October 28 2008.

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