Mortgage Defaults.

by Mark Johnston

Mortgage Defaults.

A mortgage default is a situation in which someone is not making payments on his or her mortgage, and the loan is considered to be “in default,” meaning that the lender who holds the mortgage can choose to take over the property.

Meaning that defaulting on a mortgage can result in the loss of a family home and it should therefore be avoided at all costs. 

Before the financial crisis high interest rates caused many home owners to be unable to afford mortgage repayments.

However, since March 2009 the UK has had a period of very low interest rates and the Base rates are currently 0.5 per cent.

In 2012, figures showed that 157,900 homes in the UK were in arrears.

It has therefore been estimated that 160,000 mortgages will be in arrears of at least 2.5 per cent or more by the end of 2013.

At the beginning of 2013 the Council of Mortgage Lenders (CML) anticipated a total of 35,000 repossessions.

However, repossession rates in the UK have been substantially lower than other countries, such as US and Ireland.

The Council of Mortgage lenders (CML) director general Paul Smee commented: “Mortgage arrears and repossessions have stabilised at levels lower than many anticipated when the economic downturn started. Low interest rates, continuing employment, lender forbearance and tactical public policy support have combined to ensure that repossession really is a last resort.”

Analysis shows that the number of properties repossessed by lenders has fallen sharply in the past year.

It has been recently reported that 8,000 mortgaged properties were taken into possession in the first three months of 2013, considerably down on the 9,600 recorded repossessions in the same period last year.

Harris Mark, chief executive of mortgage broker SPF Private Clients, added  “However, there are still tens of thousands of borrowers in arrears and thousands of homeowners losing their homes, signifying that all is not well. “

According to a current study, people with poor maths skills are more likely to be behind with their mortgage payments and have their home repossessed.

Professor Lorenz Goette, author of the new study, urged mortgage lenders to offer “mortgage counselling” to those who struggled with mathematical skills.

Economists have also said that people with worse numerical abilities appeared to have got worse mortgage deals due to budgeting problems and an overall lack of understanding about the mortgage they had taken out.

A report, Building an effective safety net for home owners and the housing market, argues that although arrears and repossessions are currently low, much of this is due to temporary measures. Without action and with the ending of temporary safeguards we are likely to see rising levels of arrears and possessions in the years to 2015. This in turn will act as a brake on economic recovery and any rise in consumer confidence.

All this said many industry insiders feel that lenders must continue to show forbearance and be as flexible as they can as there is no room for complacency.

 



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