Mortgages: Don't get too wound up by mortgage debt headlines

Barry Stamp
20 May 2008

You may have read in the papers that the number of repossession orders in England and Wales rose by 9% to 27,530 in the first quarter of 2008.

This is not good, but is nowhere near as bleak as some would have us believe.

Compared to the last recession in 1991, when 180,000 similar orders were made, the current level remains low, in particular when you consider that there are now 2 million more mortgages in place compared to then. Most of those extra mortgages are significantly more risky too.

Also, an order for repossession doesn't actually give the mortgage lender the ability to sell the property. It is often used as a 'means of pressure' to encourage borrowers who have lost the payment habit to start making some form of repayment. And it works. Less than half of the orders for repossession end up with the lender actually obtaining an order for sale.

What's more, only a fraction of orders for sale result in eviction. Many borrowers voluntarily vacate the property, some manage to effect a sale, others manage to get family money to keep their homes intact.

Lenders too have learned since 1991 that taking possession is the last thing they need. They need to insure, repair and maintain the property, and sell it. Not something that comes cheap.

For borrowers at the end of their rope, handing the keys back to the lender is never a good idea. What's worse, if lenders don't get enough from the sale proceeds to cover the mortgage debt, they then have to chase borrowers for the remaining debt, for at least 6 years and sometimes 12 years.

It's far easier and more financially sensible for lenders to accept whatever a borrower can afford, as long as repayments are regular, until the borrower's financial fortunes improve.

We are not saying that for those who are struggling to repay their mortgages, the real misery of mortgage arrears and the constant threat of losing your home is anything other than extremely worrying.

What we are saying is that, just as everyone knows that inflation isn't running at the official rate of 3%, those in the know about mortgages know that repossession statistics aren't helpful to real people in real difficulty.

The good news is that the mortgage industry and the debt support services are a country mile ahead of the practices that prevailed in 1991. If you are finding yourself in trouble making ends meet, the strong advice is to seek help quickly. The earlier you do, the better the chance of sorting things out.

You may be surprised to find that staff in most mortgage arrears departments are actually trying to help you retain the property. There's a good chance that they'll accept less than the full amount due each month, if you can show that you're overstretched and that your current lack of funds isn't going to be a really long term problem.

Our free Debt Advice Centre can also help highlight how to deal with debt stress, and what steps you can take to make things easier. It's completely free, impartial and anonymous. Click here to use it now.

Whilst most cases will not result in homes actually being repossessed (the Council of Mortgage Lenders predicts around 45,000 in 2008, out of the 11.8 million mortgages currently active in the UK), these figures represent a worrying trend.

Trends vary considerably by region, with London seeing an annual decrease, whereas Wales, the North West and the Midlands in particular showing dramatic increases.

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