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Associate Article

 13 May 2008 13:24 BST

30% increase in home repossessions

Wednesday, 22 Aug 2007 00:00
In the first half of 2007 14,000 homes were repossessed in the UK according to the Council of Mortgage Lenders. It represents a significant increase on the 10,800 repossessions in the same period the previous year and has been taken as a worrying indication that the financial strain of increased debt is starting to tell.

Taken along with the fact that the number of mortgages in arrears of three months is also up four per cent and it’s easy to paint a picture of Britain’s borrowing culture beginning to bite back. This worrying development could in part be attributable to an increase in the number of risky ‘sub-prime’ mortgages - creditors lending, at a higher rate than normal, to people with a credit history that would preclude them from borrowing at market interest rates. In general it seems that the last few years have seen banks continually slackening credit standards to the point where, potentially, the country has been racking up dangerous amounts of debt. Indeed, the total debt as a percentage of total disposable income has increased by a somewhat alarming 100 per cent to 160 per cent.

Whether these developments should be correctly considered as a negative reflection of the country’s overall economic health remains a matter for debate but it does seem clear that increasing numbers of us are being allowed to dig ourselves into deep financial crises by piling debt onto debt. Widespread repossession along with more and more of us resorting to bankruptcy and IVAs could be considered an inevitable outcome.

On top of increased consumer spending and living costs the Bank of England’s recent increase on interest rates means that some borrowers who took out loans in the past few years may be finding them more of a struggle to pay back. With many of us living precariously close to the edge of our financial means small increases in cost could have a significant impact.

It could be argued that banks will have to start applying more stringent standards to lending in order to prevent levels of personal debt rising any more; certainly the increased interest rates look set to stay that way for the foreseeable future and ‘sub-prime’ lending to debtors who’s finances may be severely stretched will always involve a degree of risk. If some projections are proved correct (interest hikes are likely to take something like 18 months to take effect and the first rise was a year ago) this could be the beginning of a worrying trend. It’s certainly too early to draw any alarmist conclusions however, despite the rise home repossessions figures still have some way to go before they’re touching on the high levels of the early nineties.

For those currently considering a mortgage the most important thing is to make sure you’re getting the best deal for you. There are plenty of mortgages comparison sites out there to help you find it, Motley Fool, for instance have a useful table in their Mortgage comparison centre and the "Which?" mortgage calculator will search over 8000 mortgages for you. You should also try to make use of a mortgage calculator such as the one provided on Alliance and Leicester’s website and indeed the websites of most major mortgage providers. End of story

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