Possession figures may be too low

Second-charge data opens industry to scrutinyThe Council of Mortgage Lenders has reported that 27,000 homes were possessed in 2007 but the figure could be misleading because its statistics do not include possession actions initiated by second-charge lenders.

As reported in Lending Strategy last month, in a survey by legal firm Moore Blatch 35% of non-conforming lenders reported an increase in second-charge holders taking possession, with 22% of prime lenders having to take account of this development in their future business plans.

The majority view of the first charge lenders surveyed is that all borrowing should be covered by a mandatory property risk warning due to excessive debt. And they also want all secondary lenders to be obliged to consider the borrower’s total credit position.

But there is comfort in the fact that the CML figure is 10% lower than it had anticipated, as it had previously forecast 30,000. The CML said that, at 0.23%, the possession rate was less than half that seen in the early 1990s and noted that fewer than one in 400 mortgages led to possession in 2007.

The CML also noted that, at 13,500, the number of possessions in the second half of 2007 was only marginally higher than that in the first half of the year. Although possessions have risen from a low point of fewer than 10,000 a year in 2003 and 2004, the CML said they represent a tiny fraction of all mortgages.

The CML expects the impact of payment shock for those coming off fixed rate deals this year to be cushioned by the downward movement in the Bank of England base rate. But it says funding pressures will have an impact on the adverse sector, with possible repercussions for arrears and possessions.

The CML, Citizens Advice Bureau and Shelter have written a joint letter to the Treasury calling for more support for homeowners who suffer a sudden loss of income. The organisations are calling for a review of income support for mortgage interest.

Under changes to the Banking Code of Practice to be published this month, lenders will have to start warning borrowers if they are in danger of getting into financial difficulties.

The revised code instructs banks and building societies to acknowledge that borrowers should be asked to pay off their credit cards, personal loans and mortgages only if they can still afford to pay for priority household bills, such as heating and electricity.