Repossessions crisis 'could be worse than 1992'

A report published by insurance giant AXA yesterday said as many as 1.8million buyers will be struggling to cover monthly repayments by the end of this year.

The figure is 200,000 higher than in 1992, when the country was gripped by recession, rising unemployment and mortgage interest rates of 15 per cent.

Home buyers face the risk of losing their homes

There are now 11.82 million mortgages in Britain - two million more than in 1992 - meaning there is a larger pool of borrowers vulnerable to missing their repayments if, for example, they are made redundant.

The AXA research suggests that if the percentage of mortgage arrears by the end of this year is even half what it was in 1992 then that period's grim total of 75,000 homes being repossessed in a year could be repeated.

AXA said: 'Many homeowners are stretched to the limit already to meet mortgage repayments, so would struggle if they were suddenly unable to work.

'At the end of 2007 the number of mortgages more than 6 months in arrears was 0.48 per cent - or 56,800, well below the 3.54 per cent recorded at the end of 1992.  

'However, AXA analysis shows that if mortgage arrears at the end of 2008 were only half of that recorded at the end of 1992, then approximately 200,000 more households would be experiencing mortgage payment difficulties, leading potentially to much higher rates of repossessions and bankruptcies.

'UK homeowners have failed to learn the lessons of 1992 - there are more people at risk of falling into mortgage arrears or having their home repossessed, and the vast majority of homeowners have no protection in place to guard against possible financial hardship.'

The boom of the late 1980s saw lenders offering loans of 100 per cent and more.

However rising unemployment and interest rates left thousands unable to make repayments leading to debt and misery. In 1992, when 75,000 homes were posessed, the average mortgage was a relatively modest 2.5 times salary.

AXA points out that a lending boom over the last ten years has seen huge mortgages, worth up to six and seven times income, being handed out.

Many of these loans have been made without proper checks on the finances of customers and their ability to make repayments.

Now, even small increases in the headline rate of interest means repayments on these mega-loans can generate crippling increases in repayments.

There is a particular concern around so-called sub-prime home loan customers - people who have a black mark on their credit history and typically have to pay higher interest rates.

More than a fifth of this group have fallen behind with mortgage repayments, according to separate research.

The proportion of borrowers with poor credit histories who are more than 30 days in arrears rose to 21.73 per cent in the first three months of this year.

That is up from 19.41 per cent seen during the previous three months, and compares to 18.11 per cent for the same period last year, according to credit rating agency Standard & Poor's.

S&P's data showed that those sub-prime borrowers falling into 'serious delinquency', 90 days or more behind, edged into double figures at 10.6 per cent.

The reports from AXA and S&P add to the growing body of evidence this year suggesting more and more homeowners are struggling to make ends meet.

The Council of Mortgage Lenders(CML) is predicting around 45,000 home repossessions this year, however some analysts suggest the figure could top 70,000.

CML figures show that some 1.6m households had experienced mortgage repayment problems by the end of 1992, while 3.54 per cent of mortgages were more than six months in arrears.

Ministry of Justice data showed that a total of 27,530 mortgage repossession orders were made during the first three months of 2008. That was  up 17 per cent on the same period a year ago and the highest level for 16 years.

Iain Mallon, Director of Protection Marketing at AXA, said: 'The economic growth experienced in the UK in the past 15 years has encouraged a short-term view of finances with a buy today and pay tomorrow attitude.'

S&P analyst Kate Livesey said while the current repossession figures are low, people looking to remortgage generally have to switch to a more expensive option.

Miss Livesey said: 'Two years ago those looking to re-finance would have got a better rate from a competitor. But lending criteria has tightened up recently, so that's not so much the case now.'