UK mortgage repossessions on the rise due to higher interest rates

UK mortgage repossessions on the rise due to higher interest rates - CML UPDATE

	Published : Wed, 31 Jan 2007 12:12 By : Agencies Print this Story

(Adds reaction and comment from analysts)

LONDON (AFX) - Higher borrowing costs are slowly beginning to take their toll on UK homebuyers, the Council of Mortgage Lenders said.

It said that the number of mortgage repossessions increased to 8,860 in the second half of 2006 from 8,140 in the first six months.

This took the total for the year to 17,000, which is 65 pct higher than in 2005, and broadly similar to 2001 levels.

The CML had previously forecast about 18,000 repossessions in 2006, 2007, and 2008, but said it now expects 19,000 this year and 20,000 the next.

Although the total for 2006 was slightly better than expected, the forecast for this year and 2008 are flects a slight worsening in prospects as a result of higher interest rate expectations since the previous forecast,' the CML said.

Other market-watchers said this year's slightly lower-than-expected repossessions numbers indicate the effects of a robust economy.

'Although repossessions continued to rise during the second half of 2006, the rise was slower than many had feared,' said David Stubbs, senior economist at the Royal Institution of Chartered Surveyors, who nevertheless acknowledged that this would not last as growth slows and interest rates continue to rise.

'Although strong economic growth will still be a positive force for households in 2007, the RICS expects repossessions to rise further as the impact of the recent increases in interest rates takes its toll and homeowners struggle to repay their mortgage loans,' he said.

The Bank of England increased interest rates twice last year, in August and November, and did so again this month, taking its key lending rate to a five and a half year high of 5.25 pct.

The CML said the number of mortgages more than six months behind on payments fell by 8.5 pct, from 49,010 at the end of 2005 to 44,840 at the end of 2006. This represents only 0.38 pct of all mortgages, or about one in 260.

Shorter term arrears, of three to six months, also fell. There was a 6 pct decline between the end of 2005 and the end of 2006.

The CML said it expects short term arrears to rise during the course of 2007, mostly because of the effects of the higher interest rates.

'The arrears picture at the moment is fairly complex,' said CML director general Michael Coogan.

'On the one hand, the wave of problems caused by previous interest rate rises has now worked through, so recently arrears levels have fallen. On the other hand, interest rates are rising again, and payment shock may be an issue for some this year as their existing fixed or discounted deals expire.'

Economists have noted that with house prices at elevated levels and mortgage lenders offering loans at ever higher multiples of earnings, affordability is increasingly being stretched.

'A growing number of people have become vulnerable to even a modest overall rise in interest rates,' said Howard Archer at Global Insight, noting that 'there is a very real risk that they will rise higher still.'

carlo.piovano@thomson.com

cp/pp/ro/cp/ro

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.

AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited

UK mortgage repossessions on the rise due to higher interest rates - CML UPDATE