The number of properties repossessed halved year on year in the second quarter of 2015, as low interest rates and higher levels of employment continue to help struggling borrowers to stay in their homes. The council of mortgage lenders have supplied figures showing that 2500 properties were taken into possession in the last quarter, with just under a third of these being buy-to-let. The number of borrowers with significant arrears of 2.5% or more of their mortgage balance was 106,400 people. This is down 17% from last year with serious arrears having fallen to just 1% of mortgages.
This trend is welcome, but is it is to be expected having had the lowest base rates in living memory since March 2009, and a buoyant job market, with the number of people in work totalling 354,000 more than this time last year. But we must remember that even with these conditions we still have tens of thousands of people a year either being repossessed or having serious arrears, and I wonder what would happen if conditions change.
It has generally been accepted that pressure will build up for borrowers when interest rates rise, and as a generation of borrowers have not experienced rises, it will be interesting to see how people will cope with this. A way of dealing with potential rate rises would be to take out a long term fixed rate mortgage that may be a slightly more expensive than your current deal. Never the less you have the security of knowing you won’t lose your house due to interest rate rises for as long as your fixed rate operates.
However we can get complacent and see interest rate rises as the only threat to continued home ownership. I feel that we have tended to ignore what I believe in the past, has been the main reason for repossession and this is redundancy. I think that there are significant threats in this area with the economic slowdown in China having impacted on markets throughout the world. This is potentially leading to problems in the West with lower demand leading us through to higher unemployment levels. Also the new Tory government is looking to make significant cuts in the area of mortgage income support that provides for the unemployed. Currently if you lose your job you have to wait 13 weeks before the government will pay your mortgage payments, and they will only pay interest on your mortgage to a maximum of £200,000. This scheme has been helpful for some but from next year they are extending the waiting period for help to 39 weeks. Then from 2018 they are switching this facility from being a benefit to being a loan. This means that when people get back into work they will not only have to pay their mortgage but also the amount they owe to the government or they will take it back when the house is sold.
I think it is reasonable to say that this so called safety net is now very limited, and I question how people will cope if unemployment levels start to rise as I believe that the threat has not gone away but has merely been lying dormant.
Traditionally people were very keen to protect their mortgage by taking out redundancy cover, but the PPI scandal with the banks has tainted this product. Subsequently I believe very few people now have this policy but I feel that with these new developments as mentioned above, it is perhaps about time people took another look at these plans. This is because not only could a change in economic environment make them useful, but also the significant changes in benefits. After all I believe there is nothing wrong with redundancy policies but there was something wrong in the way that they were sold by the banks. I can only hope that a new generation of products are launched with the new challenges in mind that give people the right level of protection at the right price.
Kieron Bassett DipPFS Cert SMP
31st August 2015
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