UK under pressure to shore up housing, home owners

Source : Business Times - 3 Mar 2009

THE British authorities are under growing pressure to support the property market and offer respite to distressed home owners, as repossessions - already at a 12-year high - are expected to hit 200 a day within the year.

The Council of Mortgage Lenders (CML) says that the number of repossessions will exceed 75,000 by year-end, as rising unemployment puts further pressure on borrowers already struggling with mortgage repayments.

Last year, the number of homes repossessed by banks increased 54 per cent to 40,000, CML said. This was 11 per cent less than it expected, as mortgage lenders are taking steps to ensure repossessions are a last resort.

But CML director-general Michael Coogan said: ‘There seems to be a sharp rise in cases where borrowers are handing back their keys or abandoning their properties. We strongly urge them to contact their lender and work with them before taking this step.’

Debt arrears among mortgage holders are rising steadily. By the end of last year, 1.57 per cent of all mortgages in Britain had arrears of 2.5 per cent or more on the outstanding balance.

Almost 220,000 mortgages were in arrears for three months or more by year-end, up from 166,000 at the end of the third quarter.

Particular areas, such as the Midlands, are seeing a sharp rise in repossessions. Housing charity Shelter says that 24 per cent more homes in this region were threatened with repossession last year than in 2007.

The charity’s chief executive Adam Sampson dubbed CML’s prediction of 75,000 homes being affected by repossessions in 2009 as ‘all too realistic’.

‘With CML also estimating that half a million people in Britain will fall into mortgage arrears this year, there is no doubt that many home owners will plunge further into debt as they turn to credit cards and loans in an effort to keep the bailiffs from the door,’ he said.

The government has adopted several measures to ease the burden of home owners, such as a mortgage-rescue scheme that enables housing associations to buy a property and rent it back to the former owner.

The Mortgage Support Scheme, to start next month, will enable home owners to hang on to their homes by taking a repayment holiday.

But policy-makers have faced criticism that not enough is being done to stem the growth in repossessions and stimulate the housing sector.

A group of Labour Party members, for example, is urging the government to boost the property market by imposing a freeze on stamp duty for homes worth less than £1 million (S$2.2 million) for the rest of this year, and offering a tax credit to home buyers.

Home prices have dropped as much as 30 per cent in some parts of the country. Transactions are thin on the ground, despite the Bank of England cutting official interest rates to one per cent in the past few months.