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The repossession crisis then and now

During a recent conversation with a senior figure from a large lender, I outlined my analysis of where lenders went wrong in their handling of mortgage arrears in the last repossession crisis in the 1990s.

He disagreed with my views, so I’d like to give my take on the 1990s and contrast it with the situation now. Between 1990 to 1995, around 345,000 homes were repossessed, leading to a slump in house prices as the market was hit by a glut of cheaper repossessed properties coming up for sale.

At the peak, some two million properties were in negative equity and a large percentage of repossessions resulted in huge mortgage shortfall debts, with the average amount more than 30,000.

The latest crisis has many parallels but there are differences. Parallels include poor lending, rising unemployment and more properties slipping deeper into negative equity.

The differences are generally positives. Interest rates are at a record low and lenders are being realistic about allowing borrowers to spread arrears repayments over a reasonable period.

But all is not rosy. Home owners in arrears have more unsecured debt than in the 1990s – the average for our clients is just under 40,000 – and debt collectors are more aggressive as most have purchased the debt and need a quick return.

There are also many lenders in the second charge market that have paid no heed to calls to make repossession a last resort.

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