Next year could see Britain experience a 50 per cent rise in the number of house repossessions – the highest level since the property crash of the 1990s, according to the Council of Mortgage Lenders.
Repossessions have shot up from 17,000 last year to 30,000 this year, and a further rise to 45,000 is predicted for next year as a result of rising interest rates on mortgages and the credit crunch which is leaving people feeling strapped for cash.
Expenditure has remained strong throughout the crisis and consumers are getting further into unsecured debt in order to keep pace with their spending habit in light of slow earnings growth. Unsecured lending increased last month by £1.35 billion, which included a £310 million credit card spending spree as a result of the pressure being put on income.
The bad credit mortgage sector is expected to take the worst hit next year, as 1.4 million homeowners come to the end of fixed rate deals taken out when interest rates were lower, and will suddenly face much higher mortgage repayments.
And, house prices dropped for the first time in two years yesterday, providing further evidence that the credit crunch which has been gripping the US property market and economy in recent months, is about to turn its attention closer to home. Approvals for mortgages are already down to 102,000 from 108,000 in September – almost a fifth lower than at the same time last year.
There were twice as many 100 per cent mortgages taken out in the first nine months of 2007 compared with the same period in 2006, but the CML believes that house loans will drop by 170,000 next year as credit becomes increasingly hard to come by, wiping £20 billion off mortgage lending.
It is not all doom and gloom, however. While next year’s repossessions are predicted to be the highest in 13 years, it is not expected that 1990s figures of 75,000 will be seen, despite the fact that the number of mortgages has risen by 1.5 million since the last property crash. The Bank of England is also expected to reduce interest rates three times during 2008.
Shadow Chief Secretary to the Treasury, Phillip Hammond, places the blame for the growing number of foreclosures primarily on the shoulders of the Government, pointing to Gordon Brown’s time at the Treasury as a decade of easy credit which fuelled the house price boom and resulted in enormous personal debt.
CML Director General Michael Coogan commented: “The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago. Luckily, the credit crunch occurred at a time when the UK economy was robust, but even so the effects on the financial sector are significant, and the mortgage market is not immune from them.
“We now expect a slower mortgage market next year, although by no means a stagnant one. Most borrowers will cope, but not everyone will escape unharmed from the effects of a slower market, so the government should make it a policy priority to overhaul the system of state support for home-owners, which has lagged pitifully behind the times.”
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