In total HML predicts 33,257 houses (0.3% of all mortgaged properties) will be repossessed across the UK during 2011.
Regional Outlook
Northern Ireland is expected to experience the worst rate of repossessions in the UK (0.83% - 2,540), with repossession rates significantly higher than other regions. This reflects the 10.2 per cent fall in house prices that have occurred in the region in the last year combined with the region’s links to the troubled Republic of Ireland economy.
On the UK mainland, repossession rates are likely to be above average in Wales (0.37% - 1,914), London (0.34% - 4,159), the West Midlands (0.33% - 3,406) and the North East (0.33% - 1,557)
The South West (0.18% - 1,829) is forecast to see the lowest proportion of repossessions in the UK, by a considerable margin.
HML chief commercial and finance officer Neil Warman says:
“Despite the challenging economic environment, the downward trend in repossessions we saw last year is set to continue for the first half of this year. However repossessions will then begin to rise during the second half as a number of macroeconomic factors start to impact on homeowners and influence lender behaviour.
“Of particular concern this year will be the impact of rising inflation and interest rates on hard-pressed homeowners and the effect of continuing job losses. However, these are unlikely to feed through into increased repossessions during the early part of this year.
“Looking at 2012 we see increased affordability pressures for borrowers who are in work together with the lagged effect of job losses in the public sector and benefit cuts. We forecast this will lead to a slight increase in repossessions during the year to a total of between 35,000 and 40,000.”
“These forecasts are the most comprehensive available in the UK. They use live data from 320,000 UK mortgage accounts. Key factors such as the number of people included in the mortgage, levels of other debt, credit facilities and recent payment history are analysed to predict future borrower behaviour.
"This enables HML’s clients to more effectively manage their risks, identify customers who are likely to get into difficulties and support those borrowers most at risk of losing their homes.”
Macroeconomic Indicators
In 2011 there are likely be both positive and negative macroeconomic factors affecting the number of repossessions in the UK residential mortgage market.
The main downward influencers are:
- “Survival of the fittest” Many high risk mortgages, taken out at the height of the boom in 2006 and 2007, have “come out” i.e. the cases that are most likely to be repossessed have already gone into possession. The longer a borrower has displayed an ability to keep up repayments, the more likely they are to be able to continue to do so in the future.
- Tighter lending criteria. Since the credit crunch of 2007/8, UK lenders have been reluctant to advance a mortgage to anyone without a near perfect credit record. This means the risk profile of those obtaining mortgages within the last two to three years has, on average, been significantly better than in the years before the credit crunch. Consequently, they are more able to maintain repayments on their homes and avoid repossession.
- Fewer first time buyers/maturing mortgages. While the inability to get on the housing ladder is frustrating for would-be first time buyers, they represent a group who are statistically more likely to have their home repossessed than someone buying their second or subsequent home. Older mortgage holders are also less likely to be repossessed than younger people.
The main upward influencers are:
- Limits of forbearance. Overall, mortgage arrears rates are falling, but there remains a large number of people who have a very high level of arrears with their mortgage (high defined as where the amount of arrears > 10 per cent of outstanding balance). Over the last two to three years, lenders have displayed a huge degree of forbearance. This has acted as a buffer, resulting in far fewer repossessions in 2009 and 2010 than were forecast by many observers. However, many of these mortgages have not recovered, and will therefore, end up being repossessed eventually.
- House price falls. Although difficult to predict, affordability pressures combined with a continued tightening of lending criteria are likely to lead to a fall in house prices this year, probably in the region of 5 per cent to 10 per cent. This may influence some lenders to pursue repossession of properties with high LTVs to avoid potential losses that would materialise as a result of falling asset values.
- Reduction in mortgage interest relief. In October 2010 the government reduced the interest payments for unemployed mortgage holders. While the majority of mortgages should not be seriously affected by the change, a considerable minority will be pushed into arrears as the relief payments they receive fail to fully meet their contractual repayment obligations.
Austerity Measures
There have been a lot of concerns raised about the impact of recent government cutbacks, tax raising measures and welfare initiatives. In particular, the VAT rise this year, the loss of public sector jobs and pressures on affordability as various benefits are cut, along with tight pay awards in a time of relatively high inflation.
The prospect of rising interest rates in the latter part of 2011 and 2012 is also of concern. These factors, while important, display a lagged effect, and are unlikely to have a significant impact on repossessions until
