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Mortgage problems? Join the queue

The government recently advised homeowners on the need to seek help as early as possible if they’re concerned about their ability to keep up with mortgage payments. Good job we’re a nation that knows how to queue.

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by Linton Chiswick on Aug 22, 2010 at 00:01

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Here’s the good news: repossessions are falling. The second quarter of the year saw 4.1% fewer than the first quarter. That’s 20% less than in the equivalent time span, 2009. The number of mortgages in arrears (a blunt tool for measuring future repossessions, assuming every other economic factor remains, pretty much, the same) also fell, by 5% on the first quarter, 17% on the second quarter of 2009. So heartened is the Council of Mortgage Lenders that it’s responded by dramatically revising its repo-forecast for the year, down from 53,000 to 39,000.

The brink of epochal public spending cuts might seem like an odd time to start assuming every other economic factor’s going to remain, pretty much, the same. Nor is there much wiggle room in that forecast. The second quarter showed repossessions at 9,400. Multiply that by three, add to it the 9,800 from the first quarter, and – even accounting for the three-month lagging-indicator cushion between a borrower falling on hard times and being aggressively hounded by their lender – that 1,000 margin of error, considering all the bad things expected between now and New Year, seems a bit ambitious.

And there are plenty of bad things.

Less support

Charities and debt management organizations, including the Consumer Credit Counseling Service and (get this) the CML itself, have warned that Government plans to cut Mortgage Interest Support will directly result in people losing their homes.

Currently, the support (payable to recipients of income-related benefits) assumes a 6.08% interest rate, and it’s more economical to simply pay it than make individual calculations based on individual mortgages. As a result, some recipients are said to be making a profit. From October 1, the rate will be cut to 3.75% (based on average figures provided by the Bank of England). The difference – based on a £150,000 mortgage – is around £200 a month.

Sounds fair? The problem is that borrowers who qualify for Mortgage Interest Support are also the borrowers – low equity, low wage, higher risk – who are the least likely to be bagging the deals at the lower end of the interest spectrum. They’re much more likely to be paying higher-than-average rates on their mortgages.

Worse than it seems

What’s certain is that it comes at a terrible time. Shelter estimates that there are already five million homeowners who can’t afford any rise in repayments without the risk of repossession. And Centre of House Policy research suggests even now the CML’s figures aren’t telling the full story, that formal repossessions are just one instance in which a homeowner is forced to give up a property for economic reasons. Badly advised, many sell, in a hurry, to avoid trouble in the first place. As winter approaches, debt advice services will become increasingly important. In the sector, fears are that funding will be cut.

Nor does it seem overtly bearish to worry that unemployment will rise in the second half of the year, and into 2011, as those public sector job cuts take effect. Timed nicely to coincide with a generation of interest-only mortgages coming to an end, the hike in repayments could prove extremely painful.

Get in line

Communities Secretary Eric Pickles recently impressed on homeowners the need to seek help as early as possible if they’re concerned about their ability to keep up with mortgage payments. Good job we’re a nation that knows how to queue.

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11 comments so far. Why not have your say?

I'm sick of subsidising borrowers who have exceeded their ability to pay their way or failed to make contingency plans to cover the unforseen.With absolutely minimal returns on savings, my funds are effectively paying for other people's borrowings and mortgages and the Govt. debt inherited from Labour's cavalier management of the economy, leaving me with returns which are seriously adrift of inflation rates.

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Just a few years ago interest rates were far higher then now, and therefore mortgagees have had a bonanza with rates falling, at the expense of the prudent savers. If interest rates rise, then these borrowers will simply be back where they were when they took out the mortgage.

If new borrowers have recently taken out mortgages based entirely on current low rates, then, after the credit crunch, they should have realised the problems that rates may rise and built these into their plans, Similarly lenders should have stopped 125% mortgages and been more careful on earnings multipliers etc.

So, all in all, there is no case for subsidising mortgage payments. I thoroughly agree with Armand above

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I'm also sick to the point of abandonment ( of the UK) of supporting the profligate. As a person who has always, and always will live WITHIN my means, I would like to see a complete removal of all:-

Housing Benefit

Mortgage support.

Working Family Tax credit.

Paternity support

Maternity support after the second Child (per couple)

Child Benefit after the Second Child (per couple)

Free Education and Health Care for after the Second Child (per couple)

No further QE

Rapid removal of the 200 Billion of QE already thrown in the system.

Casino Bankers in front of a peoples court.

Balir and Brown in front of peoples court.

In short:- I'd like to see economic reality and political fairness.

Guess what:- Short termism will prevail .

Result: Nation in accelerating decline

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What about those who took out mortgages before the credit crunch at rates much higher than the current low fixed rates? Mortgage protection policies don't pay out forever either.

I have benefited from the low base rate but my SVR is still above 4% and has never been as low as the proposed 3.75% for SMI.

People on low income or benefits get help towards their housing costs be it rent or mortgage related. I take it Jon and Armand are taking the hard line on those with mortgages? If their homes get repossessed then what? The local authority will have to rehouse most of them or they will have to seek private rented accommodation. If they are still on benefits then they will get help on their rents. Private rents are much higher than council rents so the inflated private rents will be met in full meaning the landlord will be getting more than enough to cover his mortgage outlay.

I agree the new SMI rate will be too low to meet the living costs of those struggling already and the added worry of losing the roof over one's head will cause further hardship.

Like it or not we live in welfare state and the maxim of "charity begins at home" should be exercised especially to those who have made a contribution but that is another can of worms.

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Thank You 'Luck Me'.

But would it not be better that all those 'on the gravy train slum landlords' got the going ' affordable' rent rather than the highly subsidised one that Taxpayers are forced to GIVE them.

Let the Tenant pay what they can, not what the greedy HP chasing British ( and non british) think they should be paid. Yes get rid of Housing Benefit and SMI totally. The result would be a balanced market. Rates on empty property from 'day one' would assist the speedy correction.

Just loose the 'One way property price myth' once and for all; that all we need to do.

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Simple equation: 1. Lowest interest rates in 300 years = People remaining in houses they cannot afford, therefore:

2. Savers shafted and subsidising the above =

3. Government quite happy with the arrangement as it keeps them off the hook.

4. Probable outcome: Savers take their ball home = Sh- - hits fan.

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Get your facts right, guys,

The DWP only pays interest on the first 100K of a mortgage which in pratical terms would only pay for a week or two rent on a modest flat. If those people are made homeless then the cost of re-housing them would cost the Gov much more.

I would say most people who own their own home will be employed and if they are eligable to claim these benefits then they are proberly now unemployed and need help.

It could happen to you. !!!

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Armand - during the good times where did you think the money came from to pay you the favourable interest rates - borrowers perhaps who paid interest on their loans?? No borrowers means no interest at all and i bet you werent complaining when those borrowere were helpin to pay you the interest on your savings. If the government dont subsidise mortgage payers they end up in private rented accommodation far higher in cost than the mortgage subsidy which the taxpayer will undoubtedly have to pay for. If after paying income taxes of £9000 per annum for the past 20 years plus all other taxes on top, i would expect help when i needed it with my mortgage if i lost my job. If not, a refund of all my taxes would be my second option.

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Jon, you are very wrong. If you borrow and buy at an overinflated price, and then run into difficulty ( ill health, unemployment etc) , then you should have factored these things when you decided to buy.

I never expected the Taxpayer to wipe my bottom and I'd rather not wipe that of a profligate, and wreckless borrower, which is exactly what the responsible saver of today is being forced to do!

Mind you a 'savers strike' may force the bad guys to be reasonable, but savers are spread the length and breath of the land.

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Rather amazingly (at least to me) is the curious fact that I (nominally a Socialist - though NOT a Democrat - most people are too stupid to be allowed to vote) find myself agreeing to much of what ANDREW 2 says!!! Except, of course, the nonsense about Blair/Brown. Have you forgotten interest rates of the early 90s? Recent events were (are!) a worldwide problem brought about largely by gambling bankers. Brown's "way" and NOT the coalition's will prove to be correct fairly soon.

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Jon

Aug 25, 2010 at 09:44

George - you have fallen for the Brown myth that it is all the fault of the bankers, Whilst they have not helped the situation through their greedy speculation, the real problem is both individuals and Brown spending masses of other people's money without the means to repay.

The bank bailout was funded from Brown's pension raid. And we may see a good return on the shares one day.

But when we employ an extra 1m public employees (just a few nurses, teachers and police - the rest are PC paper pushers such as CRB and add nothing to our exports) who then spend any surplus income on imports or foreign holidays, spend a fortune on off-balance sheet PFI then this rash spending has to be cut back to what we can afford, and we have to cut back further to pay off the debt which has been created.

And then individuals who racked up debts in the UK totalling more than the rest of the EU combined have to also face the day of reckoning, so retail sales drop below the "norm" as they pay off their debts.

Do not forget that the GDP is primarily a measure of spending - not wealth creation !

Interest rates did soar in the 90s as the then government were also faced with a massive Labour deficit, and let inflation help erode it. Let us hope that we can find a less painful way of dealing with the deficit now, and let us all remember never to elect a Labour government again !!

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