Repossessions At 7-Year High 28/07/2005

The Council of Mortgage Lenders yesterday revealed that the number of houses repossessed increased for the first time in 7 years in the first six months of 2005.

Between January and June, lending associations took possession of 4,640 properties compared to 3,070 in the previous six months. This is an increase of 51% and the first increase of any sort since the latter half of 1997.

With decreased activity in the housing market over the last few months, more and more people are worried that a crash is on the cards, as was seen in the early 1990s. However, with encouraging signs this week that activity may start to pick up again, the possibility of a 90s-style crash is diminishing. Although repossessions have increased by half, the figures are still way below those experienced during the crash. For the first six months of 2005, the repossession rate was 1 in 2,500 properties compared with 1 in 250 in 1991.

The number of mortgages that had not been paid for the last three to six months rose to 57,220 for the first half of the year, up from 53,960 in the second half of 2004. Arrears of six to twelve months also increased to 30,980 from 26,920 in the second half of 2004.

Ed Stansfield of Capital Economics said, "In any historic context, there can be no dispute that the number of borrowers falling behind with their mortgages remains low. History suggests that arrears and repossessions are a lagging, not a leading, indicator of housing market conditions. Thus the fact that they remain at low levels tells us little about where the market might be heading."

The Royal Institution of Chartered Surveyors has stated that they believe the main reason behind the increase in repossessions is the rise of the interest rate from 3.5% in November 2003 to 4.75% in August 2005. This meant that typical mortgage payments increased by 42% over 18 months.

Economists are hopeful that the Bank of England's Monetary Policy Committee will lower interest levels by a quarter of a percent at the August meeting, releasing some of the strain currently upon the housing market and the economy in general.