Big rise in mortgage arrears

THE number of households with short-term mortgage arrears has risen materially for the first time in six years, new figures reveal today. The Council of Mortgage Lenders said that 3,070 properties were repossessed in the second half of 2004, equivalent to one in 3,500 mortgages, and it warned that there is now 'bound' to be a rise in longer term arrears and repossessions.

The number of mortgages in short-term arrears rose from 49,720 in the first half of 2004 to 53,960 in the second half ? equivalent to 1 in 200 mortgages. It was also up from 51,910 in the second half of 2003.

The number of households with three months' arrears is likely to reach 112,800 by the end of 2005 and could hit 128,000 by 2007, the CML said.

Michael Coogan, director-general of the CML, said that the increase in arrears was largely a result of the extra pressure that householders were feeling due to higher interest rates. The full impact of higher rates still hasn't fed through to all households, he said, adding that when it did there would be a further rise in arrears and an increase in repossessions.

'The number of properties taken into possession in the second half of 2004 was the lowest since 1982,' Coogan added. 'But with short-term arrears now increasing, we are bound to see longer-term arrears and possessions following behind, although we do not expect a dramatic increase.

'Anyone facing financial difficulties should talk to their lender as soon as possible. Lenders try to treat arrears as sympathetically as they can ? and the sooner borrowers seek assistance, the more likely it is that lenders will be able to help.'

Coogan said he believed that unemployment is likely to pick up modestly in the coming months, which will also impact on arrears levels.

Although the number of long-term arrears cases, households whose problems go back more than six months, remained flat, there were 38,130 cases of six month arrears or more in the second half of 2004, little changed from the 38,460 seen in the first half.

Housing market analysts believe that as the effect of higher interest rate rises takes hold, more householders will fall into mortgage arrears and we could see a follow-on rise in the number of repossessions.

Although the number of repossessions is at its lowest since 1982 the increase in arrears points to future rises in repossessions. The CML said it expects repossessions to reach 8,350 by the end of this year. But few analysts expect to see a return to the late 1980s and early 1990s after the property market crashed and hundreds of thousands of people were left with negative equity and struggling to repay their mortgages.