Recovery could lead to rise in repossessions

The recovery in the UK housing market could result in an increase in the number of homes being repossessed, as mortgage lenders crack down harder on defaulting borrowers.

Since the start of the credit crunch, the Government has pressured lenders to exercise leniency regarding arrears and only to pursue repossession as a last resort.

Such practice has made sense for lenders in a depressed housing market where they would struggle to sell on repossessed property at reasonable prices.

However, this year’s housing market recovery could be set to change the dynamic, and the Consumer Counselling Service (CCS) has issued a stark warning to homeowners currently in arrears who have suspended possession orders hanging over their properties.

The debt charity counsels a large number of clients with suspended repossession orders on their homes which lenders have chosen not to enforce despite clients failing to meet court stipulated payments.

It warns that the situation is likely to be aggravated in October when the rate at which Support for Mortgage Interest (SMI) payments for those who have lost their jobs is calculated is slashed from 6.08% to 3.09%, in line with the Bank of England’s average mortgage rate.

Delroy Corinaldi, CCCS’s director of external affairs, said:

“There is no doubt that lenders have shown leniency towards debtors during the recession by not enforcing suspended possession orders. However, this leniency may have been partly determined by the markets.

“In addition, some lenders are increasingly showing reluctance in allowing struggling debtors to switch to interest-only mortgages as a short term solution, giving people the necessary breathing space to find other more sustainable options.”