Repossessions and arrears on the rise again

The number of houses repossessed increased for the first time in seven years in the first six months of 2005, the Council of Mortgage Lenders said yesterday.

Banks and building societies took possession of 4,640 properties between January and June, compared with 3,070 in the previous six months, a rise of 51% and the first increase since the second half of 1997.

Repossessions may be rising but they still remain well below the rates seen when the housing market crashed in the early 1990s. The repossession rate for the first six months of 2005 was 1 in 2,500 properties compared with 1 in 250 at its peak in the second half of 1991.

The number of mortgages that had not been paid for the last three to six months rose to 57,220 for the first half of the year, up from 53,960 in the second half of 2004. Arrears of 6-12 months also increased to 30,980 cases compared with 26,920 in the second half of last year.

Ed Stansfield, of Capital Economics, said: "In any historic context, there can be no dispute that the number of borrowers falling behind with their mortgages remains low."

However, this was not a reason to be complacent, he said. "History suggests that arrears and repossessions are a lagging, not a leading, indicator of housing market conditions. Thus the fact that they remain at low levels tells us little about where the market might be heading."

The Department for Constitutional Affairs released data that showed the number of orders made by courts for repossession rose by 61% to 18,330 for the second quarter this year from 11,404 in the same period last year.

The Royal Institution of Chartered Surveyors said the main reason the number of repossessions had risen was the increase in the cost of borrowing from 3.5% in November 2003 to 4.75% last August. This has increased typical mortgage payments by 42% in the last 18 months.

Economists are predicting that the Bank of England's monetary policy committee will cut interest rates by 0.25% to 4.5% next week.

In an interview with the Western Mail, the deputy governor of the Bank of England, Sir Andrew Large, said he thought the slowdown in the housing market may be hurting consumer spending but he was uncertain how long the effect would last.

"As house prices are not rising significantly, this might be having an impact on people's attitudes," Sir Andrew said. "They could be thinking 'Oh well, if I cannot rely on the price of my house going up, I might be a bit more careful.' "

Sir Andrew is one of the hawkish members of the MPC who voted in July to keep interest rates at their present level of 4.75%. As recently as May he wanted to increase rates because of worries about rising inflation.

Separately, the British Bankers' Association said yesterday the number of new mortgage approvals rose to an 11-month high in June but was still down by more than 20% compared with the same month last year. Mortgage loans approved for home purchase in June this year numbered 70,750 compared with 88,859 loans approved in June last year, and significantly below the average June level of 86,146 for the period from 2000-2004.

Howard Archer, chief economist of Global Insight, said: "This data is consistent with our belief that house prices are likely to remain soft for an extended period rather than undergo a sharp correction. Equally though, any upturn in house prices seems unlikely for some time."