Rise in unsecured borrowing may fuel repossessions

The rise in unsecured personal borrowing shown in the recent Bank of England figures may result in an increase in the number of repossessions over coming months, according to Moore Blatch.

In a recent survey of UK mortgage lenders, the repossession litigation specialist found that 16% of repossession cases were due to borrowing from other sources.

With unsecured personal borrowing up £2.4bn in February, the biggest rise for more than five years, many homeowners may struggle to maintain their mortgage payments and risk losing their homes.

Paul Walshe, head of lender services at Moore Blatch, said: “Unsecured borrowing has been given a boost by lenders reducing the availability of mortgage equity.

“In the past, many people in financial difficulty may have raised finance by withdrawing equity from their property, and are now being forced into taking out personal loans or increasing their overdraft facilities, subjecting themselves to high interest rates. As a result, their monthly outgoings are increasing substantially, meaning they can no longer afford their mortgage repayments.

“Our research shows that 73% of mortgage lenders believe the Financial Services Authority should produce guidelines on acceptable borrowing. Furthermore, 96% believed that all borrowing should carry a mandatory risk warning. Perhaps now is the time for the FSA to step in and ensure people are aware of the risks associated with unsecured borrowing.”