House repossessions set to soar

The Council of Mortgage Lenders (CML) warned the five interest rate rises seen since the summer of 2006 would contribute to a 50% jump in the number of homes that are repossessed during 2008.

But it added that the problems would be exacerbated by the global credit crunch as lenders tightened their lending criteria, making it increasingly difficult for some people to remortgage.

The gloomy predictions come as figures from the Bank of England showed that the number of mortgages approved for people buying a home fell to a two year low during September. A total of just 102,000 new mortgages for people moving were approved during the month, the lowest level since July 2005.

At the same time property information website Hometrack said house prices were falling for the first time in two years, dropping by 0.1% during October in the face of hikes in the cost of borrowing and falling consumer confidence.

The CML said the global credit crunch was exacerbating trends that were already emerging in the housing market. It said it had already been expecting arrears and possessions to rise, but the situation would be worse than previously expected because of the tighter lending criteria many mortgage lenders are now imposing.

The group expects around 45,000 homes to be repossessed by lenders during 2008, up from 30,000 this year. At the same time the number of people who are in arrears of at least three months is also set to increase, with 170,000 people expected to have problems keeping up with their mortgage repayments next year, compared with an estimated 145,000 this year.

The group said the hikes in interest rates would be particularly acute for the estimated 1.4 million people who are due to come off fixed rate loans next year that they took out when interest rates were much lower.

It added that the remortgaging options available to some borrowers, such as those borrowing high income multiples, people with high loan-to-value ratios and those with adverse credit histories, would also have reduced as lenders became fussier about who they advanced money to. As a result some homeowners will be forced to stay on the more expensive standard variable rates that they automatically move to when their fixed rate deals come to an end.

The CML is also expecting house price growth to almost stall next year, falling from around 7% this year to just 1% in 2008, while property sales will drop from 1.17 million to just over 1 million. http://www.hometrack.co.uk/(Hometrack)