The latest data from the Council of Mortgage Lenders show no surprises in terms of the number of mortgage arrears and possessions cases in the first half of 2008. While both have increased from their low base as expected, the overwhelming majority of the UK’s borrowers continue to pay their mortgages in full every month, and will continue to do so.
CML Press Release – 8 August 2008
The CML is maintaining its forecast of 45,000 total possessions and 170,000 mortgages in arrears of more than three months by the end of the year. These numbers remain extremely small when seen in the context of the 11.74 million mortgages in the UK.
The CML numbers relate only to first mortgages, not to other consumer loans secured on people’s homes.
The possession rate – that is, the proportion of all mortgages on which possession occurred in the period – was 0.16% in the first half of the year, up from 0.11% in both the first and second halves of 2007. The possession rate now is similar to that of the late 1990s, but remains less than half the rate experienced in the early 1990s.
By number, there were 18,900 cases where lenders took possession of property in the first half of the year. This compares with 13,400 in the second half of 2007, and 12,800 in the first half of 2007.
On arrears, the total number of households with arrears of three months or more was 155,600 at the end of the first half of the year, up from 129,600 at the end of 2007 and 120,800 at the end of the first half of last year. The arrears rate stood at 1.33% of all mortgages, up from 1.10% at the end of 2007 and 1.02% at the end of the first half of last year.
The CML does not collect disaggregated data by region, property type, borrower characteristics, or loan characteristics. But it is possible to observe in general terms that, while arrears and possessions rates have risen across the industry, the impact of the credit crunch has hit the adverse credit sector harder than most of the mainstream market, which continues to perform well.
This is not surprising, given the greater inherent propensity for default in the adverse credit sector due to borrowers’ past credit experience. It is exacerbated by a greater proportion of adverse credit loans being linked to Libor, which remains stubbornly high. The dramatic reduction in the availability of new adverse credit mortgages has also affected borrowers who might otherwise use remortgaging as a strategy to help manage their payments.
The CML has been working extensively with the government, consumer groups, the FSA and the courts to ensure that as much as possible is done to help borrowers who may be facing financial problems, and to manage arrears effectively in business terms. Examples of work include:
* Regular liaison with the Treasury to monitor trends and report initiatives, and liaison with the Department for Work and Pensions to seek reform to improve the overall safety net for borrowers facing difficulty.
* Helping lenders to embed the FSA’s arrears management requirements into their systems, processes and staff training. One example of this is the CML’s e-learning training course, currently under development in partnership with Absolutely Training, due to launch this autumn.
* Regular dialogue with consumer groups and the advice sector to identify any emerging issues, and to facilitate good channels of communication between individual lenders and advice agencies acting for borrowers.
* Support and technical input to the Civil Justice Council to help deliver an accepatable and workable “pre-action protocol” for use when possession cases go to court, which will help to deliver a consistency of approach by lenders, be consistent with the FSA’s mortgage rules, and minimise unnecessary legal costs for borrowers.
The CML has today published a leaflet for MPs designed to help them to advise any constituents who may approach them for help as a result of mortgage payment difficulties. The CML also works closely with the consumer advice agencies, who also have an important role in helping and advising borrowers facing difficulties, especially those with multiple debt problems or those needing advice on re-housing.
Commenting on the current situation, CML director general Michael Coogan observed:
“The number of people facing difficulty needs to be kept in perspective. The good news is that most people are coping well and continuing to pay their mortgages in full, despite the higher costs of food and fuel and the higher mortgage rates now prevailing in the market for those coming off cheaper original deals.
“But it is inevitable that more borrowers’ coping strategies will come under pressure in current conditions than in the unusually benign years of the last decade. That’s why lenders, government and the advice sector are working closely together to minimise the impact on borrowers.
“We will continue to work on behalf of the whole industry with the FSA and others to ensure fair practices are maintained. And we continue to press the government to play its part in creating an effective safety net for vulnerable borrowers facing a short term loss of income through better state support.
“No-one wants to see a household lose their home, and repossession typically leads to a loss for the lender as well. The focus of lenders’ arrears management policies today is on seeking realistic alternatives that balance the interests of customer and lender. Anyone who thinks they may be heading towards financial problems should contact their lender to discuss their options – the earlier the better.”