Rising Debt Burden in U.K. Contributes to Foreclosures

The numbers of repossessions and cases of mortgage arrears in the United Kingdom both rose in the first half of this year, but both remain at extremely low levels by historical standards, according to a new study by the Council of Mortgage Lenders.

"The number of properties taken into possession rose from 3,070 in the second half of last year (the lowest figure on record) to 4,640 in the first half of this year (similar to the half-yearly levels of 2002 and 2003). The number in the first half of last year was 3,160. Repossession occurred in 0.04% of all mortgages, compared to 0.03% last year," the CML said.

"Arrears and possessions now look set to rise a little, but only to the sort of levels experienced in the past few years," said Peter Williams, CML deputy director general.

"Put another way, the half-yearly repossession rate was around [one] in 2,500 mortgages, compared with around 1 in 250 when repossession rates peaked in the second half of 1991," the CML said. "The number of mortgages in arrears of [three to six] months was 57,220 - up from 53,960 in the second half of last year and 49,720 in the first half of 2004. This equates to 0.50% of all mortgages (compared with 0.47% and 0.43% in the second and first halves of last year).

"Arrears of [six]-12 months accounted for 30,980 cases, compared with 26,920 in the second half of last year and 26,980 in the first half of 2004. This equates to 0.27%, compared with 0.23% throughout last year," the council said.

According to the CML, "The number of mortgages more than 12 months in arrears was 12,380, up from 11,210 in the second half of last year and 11,480 in the first half of 2004. This equates to 0.11% of all mortgages, compared with 0.10% throughout last year."

The CML said, "The reasons for the rising trend are not clear-cut, but are driven by a mix of factors. The most notable is interest rates, which have worsened a little and hence influence the incidence of arrears and repossession. [Labor] market indicators also look less positive.

"The build up of personal debt will cause difficulties for some financially stretched households. But set against this, the positive equity cushion that [U.K. homeowners] have accumulated will provide a way of helping some households through difficulty, without resorting to repossession. And lenders remain committed to the principles of sustainable home-ownership, through encouraging the use of relevant protection insurance and exercising forbearance, as well as through their initial lending risk assessments."

Mr. Williams said the CML is "working with the [government] and the industry to try to make repossession as unlikely as possible. This involves meshing state support, in the form of tax credits and welfare benefits, together with private sector insurances and lending policies to try to ensure that we make mortgages more economy-proof. Becoming unemployed or seeing interest rates rise should not result in an inevitable arrears situation for borrowers. We are currently identifying how to target those most at risk - such as first-time buyers - with information to help them assess their risk and reduce their vulnerability to changing circumstances."

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 U.K. There are 11.5 million mortgages in the United Kingdom, with loans worth a total of around 900 billion (about $1.58 trillion).

SNAPSHOT: U.K. Home Repossessions

1st Half '04 3,160

2nd Half '04 3,070

1st Half '05 4,640

Source: Council of Mortgage Lenders

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