Latest drop in repossessions masks hidden threat

Repossession rates have fallen to another new low but brokers warn that will quickly reverse when interest rates finally start rising.

Repossessions continued to fall in the second quarter of 2015 to 0.02%, equivalent to just one in 5,000 mortgages, according to latest data from the Council of Mortgage Lenders (CML). Arrears also continued to slide.

Some 2,500 properties were taken into possession in the second quarter, down from 3,000 the previous quarter and 5,400 in the second quarter of last year.

Of these, 1,800 were in the owner-occupier market, and 700 in the buy-to-let market.

CML director general Paul Smee welcomed the trend. "Low interest rates are acting as a significant support for home-owners in general, and are likely to be helping to stave off low level arrears for stretched households in particular.”

Jonathan Harris, director of mortgage broker Anderson Harris, said the low level of repossessions was expected given rock-bottom interest rates, improving employment figures and lender forbearance. 

But he warned: “There are still tens of thousands of homeowners being repossessed or finding themselves in arrears on their mortgage each year, which begs the question: what will happen when interest rates do start to rise? How will people cope?

“We suspect that when it comes to their finances there are many people teetering on a knife edge and rate rises could easily push them over."

Harris urged vulnerable borrowers to seek independent advice and consider fixing their mortgage if they would struggle to pay it when base rates do rise. 

Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), said: “The record low base rate has played a big party in helping households keep their loan commitments in check.

“The prospect of a higher base rate is clearly the biggest single factor that threatens this progress, but rate rises will be slow and steady – giving consumers plenty of time to adjust.

“The tightening of loan criteria following the Mortgage Market Review (MMR) will also help keep things on a stable footing moving forward."

Murphy said the timing of the first base rate rise may be put back, after this week's disappointing employment figures.

“Locking into the current rates before the winds change is likely to prove a wise move, and there has seldom been a better time to seek a well-priced remortgage deal.”