Repossessions could be lower than expected

The Council of Mortgage Lenders has indicated that the number of repossessions last year could well be lower than expected. The CML issued its initial estimate of 45,000 repossessions back in October 2007, and by the end of September 2008 the actual number was 30,200. The final figures for the whole of 2008 are due to be published on February 20th, at the same time as the Ministry of Justice publish their own figures.

Whereas the CML figures will only show repossessions based on first charge mortgage lending, the Ministry of Justice figures will reflect all repossessions including those of rented property. Even allowing for differences in coverage, the two sets of figures are likely to demonstrate the very wide gap between repossession orders issued by the courts, and the number of properties actually taken into possession. In the last three months of last year, the seasonally adjusted figures form the Ministry of Justice indicated that 29,500 repossession orders were granted, but that only 11,300 were actually executed.

The CML are keen to bring attention to the large difference between the numbers of court actions and actual possessions, as they believe it shows that lenders continue to work with those who are in arrears in an attempt to find a workable solution. The CML are keen to repeat that possession is the last resort, and should only occur when lenders have taken all other reasonable attempts to reach a resolution have failed. However, despite this rhetoric, the figures would seem to indicate that in over two thirds of cases, repossession proceedings are not the last resort.

It should be pointed out that the figure relate to the first nine months of last year, before the CML decided to publish their guidance on good practice to their members. Although this was supplementary to existing regulatory rules, it was welcomed by both the Financial Services Authority (FSA) and by consumer groups, and should in theory lead to less repossession actions being started too early in the process. The guidance was further re-enforced in late November by the establishment of a pre-action protocol by the Civil Justice Council. The pre-action protocol is designed to ensure that lenders who seek to initiate repossession proceeding are able to demonstrate that they have taken all reasonable steps to come to an agreement with the borrower, and that the point of last resort has truly been reached.

The CML admits that one aspect of their increasing forbearance in this worsening economic environment will be a huge increase in the number of borrowers who will go through periods of longer term arrears and then get back on track, rather than face having their home taken into possession. This is reflected in an arrears forecast for this which estimates that 500,000 borrowers will end up three months or more behind. The burning question which remains unanswered is why, if lenders are now able to show forbearance, and accept that many borrowers are able to get back on track even after substantial arrears, were they not able to show similar forbearance in the past.

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