Tuesday, 03 March 2015

Action needed to stop rise in repossessions

Action is needed to prevent a rise in mortgage arrears and repossessions, according to a report published yesterday by the Joseph Rowntree Foundation.

The report, Building an effective safety net for home owners and the housing market, argues that although arrears and repossessions are currently low, much of this is due to temporary measures. These include low interest rates, the funding for lending scheme and extensions to support for mortgage interest. The report warns arrears will rise substantially as the economic downturn continues.

The report suggests two models for bringing in a better safety net for homeowners. The first of these is a sustainable home ownership partnership fund to which borrowers, lenders and the government all contribute. The second idea outlined by JRF is an insurance scheme into which homeowners would be auto-enrolled.

The report said: ‘Action needs to be taken now so that a new structure can be put in place to underpin home-buyers and the housing market and in so doing help the wider economy.

‘[The authors] consider that both the sustainable home ownership partnership and auto enrolment options have potential merits as the basis for reform.

‘Without action and with the ending of temporary safeguards we are likely to see rising levels of arrears and possessions in the years to 2015. This in turn will act as a brake on economic recovery and any rise in consumer confidence.’

Readers' comments (16)

  • It is clear from the fall in home ownership - from the 2003 peak of 71% to the current 64.8% that structural problems in the UK economy were present a long time before the mid 2007 credit crunch.

    Many will have jumped on the "ladder" as a young childless couple with 2 incomes - then decided to have a family - leaving them exposed to just one income source. With ongoing falls in real wages alongside above inflation rises in food/utilities - such a group are too heavily leveraged - even with rock bottom bank rate and forbearance of lenders.

    Economists have long predicted a fall in home ownership - closer to 60% - and the 6% fall in past decade accounts for maybe around 1.3 million families exiting that tenure - over 2500 per week.

    In the long run - after clearing a mortgage - home owners have the cheapest and most secure tenure.

    But for the 300 months of a typical 25 year mortgage - servicing that mortgage plus all the usual bills - plus home maintenance and repair - plus Service Charges for leasehold property - will for most of the country be far more expensive than rental - especially so in the south.

    The only exceptions would be where a purchase is made with say a 40/50% deposit.

    Currently - ie since the millenium - wage growth has averaged circa 2.5% cagr - which takes 30 years to double a gross wage - contrasting massively with a doubling every 4 years in the 1970s - and pro rata every 8 years in the 1980s.

    Thus low wage growth means any new mortgage today is likely to be a millstone for the majority of a working life.

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  • In past years - SMI was unlimited in both amount and duration - for working age borrowers.

    The last Labour govt truncated the benefit to cover a maximum 24 months - for a maximum £200k loan - which has to be for the original purchase of the property - and thus excludes any remortgaging for extensions/refurb etc etc.

    For those of Pension Credit age - SMI remains unlimited in duration.

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  • Brian C Kent

    Not rocket science, merely the simple reality of cause and effect.

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  • Norman Froggatt

    If JRF think it is bad now just wait until the interest rates rise, which they most surely will.

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  • Indeed Frogman - recent media comment suggests about 4 million borrowers are at risk of default if interest rates rise.

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  • This bedroom charge is a way of getting the poorest out .People now are not just worried about eating and heating .How can you make a disabled person homeless ?So this falls on local government .Crafty tories .

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  • Stop repossessions?... You crazy... The CONDEMN (CONDAMN?) have worked so hard to make easy for people not to have homes or lose their home if they are still lucky enoguh to have one already, they wouldn't dream of it... Job well done, they must be telling themselvels patting each other on the back, and smiling candidly to their supporters and acolytes in the social housing sector.

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  • BlokeWithAConscience

    The over-priced housing market as a multiple of average earnings appears to be the culprit. The consequences are the risk of repossession and the lack of homes for first time buyers priced out by the buy to let investor brigade seeking their super profits. The answer is rent controls which would mean less evictions and a fall in house value to assist first time buyers as investors would look elsewhere for their profits and of course the benefit for the taxpayer of a universal drop in housing benefit. We are at the tip of the iceberg for Bedroom Tax evictions and judging by the contempt shown by the government I can only presume they want tenants out to re-let at the high end MV80% so-called "affordable" rent. One day things must change but it is painful as we wait for common-sense to prevail.

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  • Outside of London - which is a micro market in itself - property prices in most areas are at best static/falling compared to 2007/08 peak in nominal terms - and in real terms are definitely below peak values after inflation.

    Very slowly the price to wages ratio is improving in aspiring buyers' favour.

    It is a moot point as to how many would have suffered had we had the monumental overnight downward correction in property prices such as Spain/Ireland/USA - which clearly has bankrupted millions in those countries.

    Indeed Ireland has spawned "bankruptcy tourism" to UK - where we discharge bankrupts after 12 months - versus 12 years in Ireland.

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  • michael barratt

    In such tough times it should be the duty of Government to support its citizens by all means irrespective of them renting or are buying their homes. I do not see in action this Government helping those who are struggling, in fact the ConDems only appear to be making matters worse by the muddled and unfeeling policies.

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