Millions could be forced to sell homes as fixed rates expire

Article 2007-11-20, 08:20:00

Selling up and renting could be the only option for sub-prime mortgage holders

More than a million homeowners face a jump in mortgage payments of up to 60% when their cheap fixed-rate deals end. Analysts fear the impact will result in a surge in repossessions.

The Council of Mortgage Lenders is so concerned that it has taken the extraordinary step of suggesting that some homeowners should sell their property rather than risk losing it.

Michael Coogan, director general of the CML, is particularly concerned about the 1.4m people reaching the end of cheap fixed-rate loans. They took out mortgages when interest rates were far lower but will have to switch to more expensive deals in the next 12 months. 'There is a potential payment shock of anywhere between 30% and 60% for many,' he warned.

Many could switch to new fixed or discount rates, but some will have no choice but to move to costly variable rates. In a worst-case scenario, someone currently paying £890 a month on a £150,000 mortgage fixed at 5% could see the figure rise to £1,424 a month on a variable rate.

'We are facing very difficult times,' said Mr Coogan.'We have a number of uncertainties in the market. We've effectively had two seismic events that we've still not recovered from - the earthquake of the capital markets closing because of the problems in the US subprime market and the earthquake of the Northern Rock bank run.'

Mr Coogan said those with a suspect credit record face big problems, including falling into arrears and repossession. He said they will need to protect themselves, which could mean selling up and renting.

Speaking to business information company Cantos, Mr Coogan said: 'They're clearly most at risk of repossession. They can avoid it by seeking to sell and becoming a tenant.'

Banks and building societies have redrawn lending rules in the wake of the global credit crunch, leaving a rising number of buyers being rejected as high risk, or sub-prime. These people are being forced to sign up with specialist lenders, which impose ruinously high interest rates.

Mr Coogan also suggested the Bank of England is lagging behind the US Federal Reserve which has cut interest rates by 0.75 of a percentage point in recent months.

The CML said Britain's property market slowdown will run through 2008 and partly blames the introduction of Home Information Packs in August.

Debt advisers accuse bank of being too quick to repossess

Article 2007-11-19, 05:35:00

CCCS Chairman labels Northern Rock “aggressive”

Debt campaigners challenged Northern Rock yesterday to soften its line with mortgage customers who fall into arrears after they claimed the bank was one of the most aggressive on the high street for repossessing borrowers' homes.

The stricken bank refuses to negotiate with borrowers who are unable to make monthly repayments and moves quickly to gain control of their properties rather than allow arrears to build up.

The Consumer Credit Counselling Service, which handles thousands of debt enquiries a week, said feedback from debt counsellors showed the bank was one of the most aggressive lenders dealing with customers unable to pay their bills.

Northern Rock has often stressed the strength of its loan book and its low arrears figures. It has maintained its figures for arrears of more than three months at about 0.4% of its customers, compared with an industry average of 0.8%.

The CCCS said Northern Rock refused to accept debt-management plans and routinely rejected individual voluntary arrangements, a five year repayment scheme. It is understood that the bank often offers customers further loans to repay debts over a longer period, though the bank denied this was a policy.

Malcolm Hurlston, CCCS chairman, said: "Northern Rock is one of the least charitable on the high street. It says borrowers are treated fairly, but that simply doesn't fit with our experience."

He said the bank's Together product, which combines a mortgage with a personal loan of up to 125% of the property value, was at the root of many repossessions. "The ramifications of the Together loan are felt by many customers," he said. "It blurs the line between secured and unsecured lending to the detriment of the borrower."

In many cases the customers will attempt to protect their mortgage and stay solvent by cutting back on personal loan repayments. Defaults on unsecured personal loans cannot trigger repossession orders but must be pursued through the courts.

However, the bank can apply a charge on a home to the value of the personal loan, in effect securing the entire loan against the customer's property.

Northern Rock denied that it dealt harshly with borrowers in arrears. A spokesman said the bank was well known for allowing miners to keep their homes during the miners' strike of the early 1980s and that policy persisted today.

Surveyors see house price falls

Article 2007-11-13, 05:19:00

Interest rate rise now showing effects

The slowdown in the housing market is becoming more pronounced, says the Royal Institution of Chartered Surveyors (Rics).

Its latest survey of members in England and Wales suggests prices in October fell for the third month in a row, and at the fastest pace since July 2005.

London was the only region where prices did not fall during the month, according to the Rics survey.

Almost all other surveys have pointed to a slowdown since the summer.

"The housing market is seeing the awaited slowdown that many had been expecting, with modest falls reported across most UK regions," said Rics spokesman Ian Perry.

"Credit market turmoil has yet to put downward pressure on prices in the capital, although prices have now stabilised even here," he added.

A combination of high prices and increased interest rates have finally reined in the housing market, with the unaffordability of homes, relative to average incomes, having risen to record levels.

Enquiries from new buyers also fell, for the 11th month in a row, as other factors came into play.

"Interest rate rises, the recent credit crunch and the subsequent tightening of lending conditions have all had an impact upon demand," said Rics.

Overall, 22% more surveyors in England and Wales in October saw prices fall than rise in their locality.

Although prices are still rising slightly in Scotland they are now falling sharply in Northern Ireland.

©2007 Discovery Re Mortgages UK