by Mark Johnston
Repossession rates in UK are down so far this year, but experts have warned that home owners could face severe problems making their mortgage repayments as more and more lenders raise their interest rates.
Despite the levels of repossession at the end of 2011 falling significantly by 9%, some experts are predicting that these levels are currently only representative of the ‘calm before the storm’.
Even though the Bank of England has kept its rate at 0.5% for more than 3 years now, lenders do not seem to be planning a similar freeze. It looks as though rates, which have supported troubled borrowers and kept repossessions relatively low, are going to get higher.
According to moneysupermarket.com, the average rate for a 2 year fixed rate mortgage at the end of 2011 was 3.82%; the rate for the same mortgage at the start of 2012 was 4.15%.
Around 4 years on from the credit crunch, it is though that the UK property market should now be getting healthier, but according to a credit rating agency in the last quarter of 2011, 5.6% of borrowers were in negative equity.
According to research, falling negative home equity is a ‘significant predictor of arrears and defaults’. However, the problem is not negative equity as such, the real problem is when home owners have little or no equity in their homes it tends to limit their ability to refinance.
The Council of Mortgage Lenders (CML) announced that just over 18,000 homes were repossessed in the last 6 months of 2011, but has predicted 45,000 repossessions for the whole of this year, so it is clear that they expect things to get worse, not better.
Certain data has shown that unemployment and levels of repossessions are inextricably linked. Therefore the UK is facing a ‘homelessness timebomb’ as a third of the working population would lose their homes with in 3 months if they lose their jobs, a survey by YouGov revealed recently.
The British Chambers of Commerce (BCC) also warned that unemployment could peak at 3.25 million, more than 10% of the workforce, if government bids to kick start the economy were inadequate. Although any increase in unemployment levels could prove disastrous for those already struggling to meet rent and mortgage payments.
Chris Gardner, from mortgage broker obligo.co.uk, said “many home owners are being given a false sense of security by low interest rates and the fact that banks are at the moment being more understanding of customers payment problems”.
However, for all that banks and lenders make comforting noises and say that they are alert to the needs of their customers; the fact is that they will offload as many troubled borrowers as their balance sheets will allow.
Therefore experts feel that lenders forbearance can not last forever and if they change their approach, the rug will quickly be pulled from under many late payers.
With all this in mind, it seems then that most home owners could potentially come under a lot more pressure in the coming months of 2012.
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