UK Markets close in 2 hrs 13 mins

Home Repossessions Drop To 18-Month Low

(c) Sky News 2012

The number of home repossessions could rise despite the figure hitting an 18-month low in the second quarter of the year, lenders have warned.

There were 8,500 repossessions between April and June, marking the lowest quarterly total since the last three months of 2010, according to the Council of Mortgage Lenders (CML).

The trade body said there were 18,100 repossessions in the first six months of the year - less than half of the total predicted for the whole of 2012.

The CML said the figures indicate that repossessions are so far on a "lower trajectory" than its previous forecast but also warned that weaker expectations for economic growth could result in greater numbers of home owners having to hand back their keys.

Household finances remain under intense pressure amid high unemployment and low wage increases despite falling inflation.

As a result, the CML said that the number of borrowers with high levels of arrears had been creeping up.

There were 28,300 mortgages with arrears of more than 10% of the balance, an increase from 28,000 during the previous quarter.

More than a million home owners saw their mortgage rates rise in May, following a string of increases announced by lenders which were largely blamed on higher funding costs.

The Bank of England hopes the Funding-For-Lending scheme it is running with the Treasury to help bring those funding costs down will have an impact on mortgage rates.

But the bank's governor, Sir Mervyn King , appeared to rule out a cut in the base rate of interest from its historical low of 0.5% to help borrowers further, saying it could damage building societies.

Lenders have been tightening their borrowing criteria in recent months, causing a drop in the proportion of mortgage approvals, making it tougher for people to get a mortgage or switch to a cheaper deal.

The CML, whose members include banks and building societies, said that lenders' forbearance had helped to ease the arrears situation, with some reducing rates temporarily, as well as extending payment dates.

Another key factor in the fall in repossesions, the body said, was the Government's Support for Mortgage Interest scheme, which covers interest payments for the unemployed on up to £200,000 of their loan.

The CML's director general Paul Smee said: "The figures show that lenders, borrowers and debt advisers are working together to get through the current period of economic difficulty and keep mortgage possessions in check.

"Generally, when borrowers prioritise their mortgage commitments, lenders can provide help appropriate to their individual circumstances.

"But success in managing temporary payment problems depends on everyone working together, and it is essential for anyone worried about their mortgage to talk to their lender as soon as possible."