U.K. Home Repossessions Touch Highest Since 1990s

2008 May 9

UK - May 9 2008 - U.K. home repossession claims by mortgage lenders rose 16 percent from a year ago to the highest since the early 1990s, prompting the government to pledge more support to people struggling with their debts.

The Ministry of Justice said possession claims, the first step in the foreclosure process, climbed to 38,688 in the first quarter. Repossession orders issued by courts increased 17 percent from a year earlier to 27,530. Housing Minister Caroline Flint said the government will offer free legal advice to homeowners in arrears and expand training for debt councilors.

Banks led by HBOS Plc and Alliance & Leicester Plc have pulled their best mortgage offers and raised borrowing costs after their own funding costs surged. Repossessions rose most in districts where Prime Minister Gordon Brown’s Labour Party has its strongest support.

“It’s the first step in a trend that’s going to continue for the rest of the year, and it will get quite unpleasant,” said Alan Clarke, an economist at BNP Paribas SA in London. “People took on too much debt and assumed that house prices were just going to continue to rise.”

Subprime Mortgage Crisis

Policy makers are seeking to prevent a repeat of the last housing market crash, which resulted in prices falling for five years until 1995. While the Bank of England has cut interest rates three times since December to avert a recession, lenders are still struggling to cope with the collapse of the U.S. subprime market, which raised the cost of credit worldwide.

Chancellor of the Exchequer Alistair Darling yesterday met mortgage lenders to discuss lending conditions. Flint today said that the government will also ask lenders to improve the advice it offers customers seeking to refinance debts.

“For the minority of owners who may need support and advice now, we want to ensure it is there for them in the right place and at the right time,” Flint said in a statement issued the Department of Communities and Local Government.

Repossessions are especially concerning for the ruling Labour Party, since claims in the areas where the government draws its strongest support increased more sharply than the national average.

In parts of central England such as Evesham, claims increased by 167 percent. They rose by 11 percent in Shrewsbury and by 84 percent Melton Mowbray. In areas of the north of England, they rose by as much as 79 percent in Altrincham near Manchester; by 61 percent in Southport near Liverpool and by 64 percent in Rotherham near Sheffield.

Labour’s Woes

Labour lost council seats in some of these areas in regional elections last week, contributing to the party’s worst poll results in four decades.

A survey for the Sun newspaper today showed Labour’s support at the lowest since 1968. The YouGov Plc survey for the Sun suggested Labour had the backing of 23 percent of voters compared with 49 percent for the Conservatives and 17 percent for Liberal Democrats. Brown has until the middle of 2010 to call the next general election.

The pound headed for its first weekly decline in a month against the euro and dropped to the lowest since February versus the dollar, as investors added to bets on an interest-rate cut at the central bank’s June 5 meeting. The currency traded at $1.9466 and 79.34 pence per euro as of 1:34 p.m. in London.

Brown’s View

A government spokesman said the problems now don’t compare with the last crash, which Brown often points out happened under Conservative Prime Minister John Major.

“Repossession rates remain at around one-third of the rates that we saw in the early 1990s, but the government does want to make sure that everything is being done to help households so that repossession is only ever a last resort,” Michael Ellam, a spokesman for Brown, told reporters in London today.

Today’s figures show actions in courts and don’t record the actual number of homes repossessed by mortgage lenders, which are often lower. The Council of Mortgage Lenders says many orders are not enforced because “an alternative solution” is reached between the bank the borrower.

In April, U.K. house prices fell from a year earlier for the first time since 1996, HBOS Plc, the country’s biggest mortgage lender, said May 2.

The government has already pledged 560 million pounds ($1.1 billion) for debt advice such as a national telephone helpline, money to prevent homelessness and financial aid to low-income households who can’t pay their mortgages.

The Bank of England raised its assessment of the probability and impact of a household debt shock to the economy on May 1. “There is a tail of households who appear vulnerable to a tightening of credit conditions,” the bank said.

“We called on the government to provide greater debt advice more than 18 months ago,” said Grant Shapps, a Conservative member of Parliament who speaks on housing. “While we welcome the Government belatedly getting on board, it’s too little too late and does nothing to help the 27,000 families who have already experienced repossession.”

U.K. Home Repossessions Touch Highest Since 1990s
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