Mortgage News - July 2007

Repossessions rise in first half of year

In 'substantially' revised data, the Council of Mortgage Lenders (CML) has revealed repossessions rose nearly 18 per cent in the first half of 2007. The figures were published in its half-yearly data on mortgage arrears and possessions. The CML has revised its previously published data back to the beginning of 2003. More lenders have begun to contribute to the CML's arrears and possessions survey (68 CML members accounting for 94% of members' mortgage business). This has revealed that the previous sample was less representative of the total market than previously believed. As a result, the CML has introduced weightings to reflect the changing composition of lending when grossing up the numbers to provide its estimate for the whole of the market. Taking into account the revisions, the number of mortgages in arrears of three months or more at the end of June rose to an estimated 125,100, up 4% compared with the end of December but 3% lower than at the end of June 2006. Of these, the majority (71,800) were in arrears of 3-6 months, while 38,300 were in arrears of 6-12 months, and 15,000 more than 12 months. Around 1% of all mortgages were in arrears - this proportion has been stable at low levels for several years. At 14,000, the number of properties taken into possession in the first six months of the year rose by nearly 18% compared with the previous half-year, and nearly 30% compared with the first half of 2006.

High LTV borrowers warned of negative equity risk Borrowers taking out high loan-to-value (LTV) mortgages are being warned about the risk of negative equity. Michael Brill, director of Baronworth Investment Services, cautioned borrowers that in the event of a property crash they could be facing negative equity. He said: "If we have a crash in property with a negative equity from a 110 per cent mortgage they could end up with further negative equity that is one of the big disadvantages [of high LTV mortgages]." He went on to explain that such products are suitable for young professionals and first-time buyers who have no deposit and are expecting salary increases. However, Mr Brill explained that borrowers have to be informed about the risks of high LTV.

Research by propertyfinder.com has shown 24.6 per cent of homeowners would consider taking in a lodger to boost their income if interest rates rise further. A further 19% said they would consider it if they could, but don’t have the space for one. propertyfinder.com said the need for extra income is clear. The average outstanding mortgage in the UK totals £96,000. If the Bank of England raises interest rates to 6%, a typical borrower will have seen his mortgage repayments rise by £79 per month since rates began to rise. For new borrowers, the combination of rising house prices and rising interest rates means they will need to find an extra £156 per month compared to a similar borrower twelve months ago.

Two firms fined over mortgage advice The Financial Services Authority (FSA) has fined two firms and censured one over mortgage advice failings. Lawrence Scoffield Mortgages (LSML) and Council Homebuyers (Midlands and North) (CHL) were fined £10,500 each. Meanwhile Mortgage Network Solutions (MNS) was given a public censure. Jonathan Phelan, FSA head of retail enforcement, said: "It is essential that firms implement and maintain robust processes to ensure they recommend suitable mortgage contracts and treat their customers fairly. "Poor processes of the kind we identified in these mortgage brokers meant there was a risk of unsuitable mortgage contracts being recommended, either because the advisers were not appropriately qualified and supervised or because the assessments of the customers' needs and circumstances were incomplete or poorly documented." LSML and CHL were found to have failed to exercise adequate management and control over sales processes, while MNS failed to keep proper records of customers' needs and circumstances. All three firms have now been ordered to carry out reviews.