Mortgages: Repossession figures don't paint the full picture.

Richard Catlin
19 August 2009

The latest figures released by the Council of Mortgage Lenders (CML) show that the number of completed repossessions in the UK fell 10% in the second quarter of this year compared to the first, but optimism was tempered slightly by the news that both the number of requests for repossession and the number of homeowners in serious arrears actually increased.

The drop in evictions is seen as a direct result of the Government's Mortgage Pre-action Protocol - which was introduced towards the end of last year. The main purpose of the protocol was to encourage lenders to be more sympathetic when dealing with consumers in financial difficulty.

Although the reduction in the number of properties being repossessed is encouraging and suggests that the initiative is working, analysts remain reluctant to declare that the worst is over. The 10% reduction in the repossession figures is encouraging, but it doesn't give the full picture.

Aside from the Government protocol, one of the main drivers for repossession rates stabilising is the fact that interest rates have remained at a record low 0.5% for almost 6 months now, meaning that many customers have seen their monthly repayments tumble. This is of course good news in the short-term, but there are fears that when rates do go back up - and they eventually will - there will be a second wave of people in difficulty as struggling homeowners attempt to accommodate increases in monthly payments.

Although the number of homes being repossessed fell in the second quarter of this year compared to the first quarter, the Ministry of Justice (MoJ) has warned that there are likely to be further troubles ahead, with its own figures painting a less than rosy picture.

There were 11,400 home repossessions in the second quarter of the year - a 10% reduction on the first three months of 2009. But repossessions tend to be seasonal and this figure represented a 14% year-on-year increase. The number of people in serious mortgage arrears also increased over the same period.

The MoJ's figures show that there were 26,419 Possession Order actions started in the courts between April and June - up 10% on the previous quarter. Similarly, the number of actions approved by judges also increased, up 16% to 19,123.

The increased protection and guidelines outlined in the pre-action protocol are clearly one of the main reasons that these figures didn't translate into more evictions. With homeowners still able to appeal for help at the hearing of the Possession Order, 46% of cases were suspended to give them more time to negotiate with lenders. It's important to note that a Possession Order doesn't actually give a lender the ability to evict a homeowner, it is often used as a means of pressure, and if that fails to provoke some kind of offer to repay by instalments, then the lender has to apply for an Eviction Order.

In cases where monthly repayments are re-negotiated and where the matter does not proceed to full eviction, most homeowners are happy simply to have seen the wolf from the door. The impact that this action can have on an individual's credit rating - and their ability to get new credit or re-mortgage in the future - is very often overlooked, or seen as a very secondary consequence. In most cases, any unscheduled change to the monthly repayment amount will be lodged with the UK's three credit reference agencies as an 'Arrangement to Pay'.

Despite the good intentions behind it, the presence of an Arrangement on a credit file can in reality be very damaging, especially if related to a mortgage account.

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