press release

REPOSSESSIONS are up year on year, but the latest data from the Council of Mortgage Lenders (CML) showing a 30 per cent rise on home repossessions in the first half of 2007 is not a forewarning of imminent property market recession, according to Moneynet.co.uk.

The rising number of repossessions almost certainly correlates to the succession of Bank of England base rate rises, but many of the casualties are within the so-called sub-prime mortgage sector, argues the online personal finance data analyst.

“The reported increase in the number of keys being taken back by lenders comes at the same time as a reported fall in the number of insolvencies1. This may suggest that mortgage debt is proving more of a strain on consumers than credit card borrowing and personal loans,” said Moneynet.co.uk chief executive Richard Brown.

Although the number of mortgage repossessions rose in the first half of 2007, accounts in arrears by 12 months or more actually fell and those less than 12 months in arrears rose only slightly.

“Borrowing rates remain historically low, and, given the fundamental strength of the economy, we are not witnessing a repeat of the 1991 recession, when the number of mortgage holders one year or more in arrears was around 12 times higher than it is now2.

“The rapid growth of the sub-prime market means that – by the very nature of the borrowers who rely on this market – there are going to be those who are more vulnerable to successive base rate rises,” added Brown.

The CML confirmed that a significant number said a key factor in the higher figures is the rise in sub-prime mortgage lending to consumers with patchy credit histories.

“The sub-prime market has boomed in recent years, and now accounts for around 8 per cent of the UK market and involves lending to riskier customers who are more likely to default,” said Brown.

“There are however likely to be more casualties on the way, as around two million borrowers come to the end of cheap fixed-rate mortgages and switch to new higher rates deals.

“Low fixed rates are as rare as hen’s teeth these days, and anyone coming out of a deal may prefer to opt for a discounted tracker,” he added.

“While one more rate rise this year could well be on the cards, the consensus in the City is for rates to start coming down next year.”

* BBA/BSA data, April 2007