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News: Weekly News Round Up - Human Cost Of Repossessions Laid Bare

Fri, 08 Aug 08

The personal cost of the house price slump and credit squeeze was laid bare this week when it emerged that a couple who had lost their home were now living in a shed on an allotment.

Philip and Debbie Galloway lost their home in June after falling into arrears with their mortgage repayment and moved into the shed when offered only “run down” alternative accommodation by the local council – see Home News 5 Aug 2008.

They said that some of the homes being offered were not even habitable for the couple and their six children, who are now staying with relatives.

According to latest Council for Mortgage Lenders estimates the Galloways are among around 45,000 mortgage holders who will lose their homes by the end of this year.

The CML estimates that around 170,000 people by the end of the year are in danger of being repossessed as they are likely to fall behind in their mortgage repayments for three months or more.

Although compared to the 11million mortgage holders in the UK the numbers are small, nevertheless they are worrying, especially for families like the Galloways, left homeless and fearful of the future.

The CML figures for actual repossessions so far this year show a 41% rise compared to last year and further proof that the credit crunch is making an impact on mortgage holders.

For the first half of this year the proportion of all mortgages on which repossession occurred was 0.16%, up from 0.11% during 2007.

In terms of numbers there were 18,900 repossessions during the first six months of 2008, compared with just 12,800 during the same period in 2007.

CML director general Michael Coogan says that while worrying, “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.”

He says that lenders are working closely with government and city watchdog the Financial Services Authority (FSA) to ensure that vulnerable borrowers are supported and do not lose their home.

"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,” he adds.

But according to the FSA while some lenders are adopting this compassionate approach others are not.

In a damning report released this week the FSA says lenders themselves must shoulder some of the blame for the increase in repossessions – see Home News 6 Aug 2008.

It says lenders, particularly those in the specialist sectors lending to higher risk borrowers, are too quick to repossess homes and fail to look for alternatives.

Research carried out by the FSA found a number of weaknesses in the way some mortgage lenders dealt with customers.

Too often a “one size fits all” approach to recovering arrears was in place, making little reference to individual circumstances.

Others were too ready to take court action and paid too little attention to training staff in arrears handling.

Lesley Titcomb, the FSA director responsible for the mortgage sector, told the mortgage lending sector, “It is vital that firms treat them fairly. 

“This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution.  Repossession has to be the last resort,” she added.

Elsewhere this week property news was dominated by confusion over the future of stamp duty, with speculation in the media that the Chancellor Alistair Darling was considering a ‘stamp duty holiday’, allowing homebuyers to defer payment - see Home News 6 Aug 2008.

Earlier in the week he refused to rule out changes to stamp duty, a move that provoked anger among estate agents who were left dealing with potential buyers pulling out until a final decision on the tax was made.

Later in the week the Treasury ruled out such a move. Quite rightly estate agents were questioning Darling’s strategy in not taking a tougher stance in ruling out the move earlier on.

Home buyers would have welcomed changes to stamp duty, which organisations such as the CML have long argued is an unfair tax. Homebuyers and mortgage holders were left further disappointed by the Bank of England’s decision to keep interest rates on hold  - see Home News Aug 7 2008.

Rates remain on 5%, but according to among others the BBC the decision is likely to have been contentious. Minutes from the previous meeting, in which rates were also held, show a three way split among the BoE’s Monetary Policy Committee members as to whether rates should go up, down or remain the same.

A week in property market news would not be complete without the usual round of house price predictions and figures.

This week was particularly depressing with city analysts interviewed in the Financial Times predicting a 30% slump in prices over the next three years, effectively wiping £50,000 off the value of a £185,000 home  - see Home News 4 Aug 2008.

Latest figures from the HBOS Halifax were also released, showing a fall in prices of 1.7% during July, taking the annual rate of decline to 8.8%.

This means mortgage holders, who are looking to hammer out new mortgage deals, are finding fewer affordable options available as their equity is reduced.

How long will it be before more horror stories of families living in sheds emerge?

 

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