The repossession plague that blighted the lives of tens of thousands of homeowners in both the 1990s housing crash and the global financial crisis a decade ago could be set to return.
Industry experts fear a cocktail of financial pressures may push an increasing number of families to the brink, unable to meet their mortgage repayments.
Recent changes to a key state benefit are primarily to blame. But higher interest rates and economic paralysis caused by Brexit – leading to potential job losses – have also raised the unwelcome spectre of the resurrection of mass repossessions.
Blight: House repossessions could rise as families miss payments after a key state benefit is changed to a loan
The number of repossessions and mortgage accounts in arrears has fallen steadily in the past five years on the back of record low interest rates. But industry insiders warn the trend will reverse before the year is out.
A key trigger for the anticipated rise in arrears is the conversion of state benefit ‘support for mortgage interest’ to a loan.
This benefit had previously protected thousands of vulnerable mortgage borrowers from accumulating arrears and ultimately losing their homes. It had been available to those on income related employment and support allowance – and also pension credit. It meant interest on their loan was paid by the Government direct to the lender.
For those on unemployment benefits this kicked in after a 39-week waiting period on loans up to £200,000. For those on pension credit there was no waiting period but help only on loans up to £100,000.
If eligible claimants want to continue receiving support, the cash is still paid direct to the lender. But since April, the benefit is treated as a loan with a variable interest rate of 1.7 per cent. The loan must be repaid either when the borrower’s property is sold or on death.
The amount of help is based on a ‘standard’ rate of mortgage interest, currently set at 2.61 per cent, no matter what rate is charged on an individual’s home loan. Official figures show that just one in five of the 105,000 eligible for mortgage support have taken up the offer.
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MORTGAGE PAYMENT PROTECTION: Covers loan repayments after the loss of a job, an accident or illness for up to two years. Maximum payment is £2,000 a month or 65 per cent of your monthly income, whichever is lower. Prices start from £10 a month.
INCOME REPLACEMENT COVER: Pays an income, sometimes up to age 60, if a homeowner is unable to work through illness. For income of £1,500 a month – deferred for three months – monthly premiums will range from between £20 and £25 a month.
CRITICAL ILLNESS COVER: This pays out a lump sum on diagnosis of a serious illness. This will cost around £45 a month to clear a £150,000 repayment mortgage, decreasing over 25 years.
Jackie Bennett, mortgage expert at industry association UK Finance, says: ‘There has been a disappointing uptake of the support for mortgage interest loan.
‘Though the Department for Work and Pensions suggests only a couple of thousand borrowers are particularly at risk, we argue that all those who have not taken the loan are vulnerable.’
She adds: ‘Worryingly, 61,000 people have actively declined to take the loan. Some will have made alternative arrangements but others will have stuck their head in the sand.’
Bennett says she soon expects to see the fallout from this rejection of the loan feed through in higher arrears figures – the precursor to repossessions.
Ray Boulger, of mortgage broker John Charcol, blames the Government’s ‘inept implementation’ of the new scheme for the low take-up.
But Alastair Neame, housing expert of research group the Centre for Economics and Business Research, suggests fears of a repossessions surge are overblown. He points to healthy employment, wage growth and a high number of borrowers in fixed rate mortgages as reasons not to worry. He adds: ‘Most people pay their mortgage first and cut back elsewhere.’
Neame’s main concern is for older borrowers on fixed incomes. He says: ‘They are the greater risk. But for those in genuine trouble the loan option is a no-brainer.’
Last year, more than 140 families lost their homes every week because they were unable to meet their mortgage repayments. These figures pale when compared to 1991 when ten times that number were repossessed each week – 75,500 over the year. In 2009, with the financial crisis at its peak, 940 people a week lost their properties.
Unlike in the 1990s, repossession is now a lender’s last resort. Struggling borrowers can request a payment holiday, ask for a mortgage term to be extended or arrears to be added to the loan.