The credit crunch is going to cause almost a 25 per cent increase in the number of homes that will be repossessed this year, according to the Centre for Economics and Business Research (cebr).
The latest Consumer and Housing Report Prospects report from the cebr, released today, has found that more than 33,000 British homes will be repossessed this year as a result of the knock-on effects of the credit crisis on UK householders which are finding they can no longer afford their mortgage
Compared to last year, this is a 23 per cent increase, and a weighty 300 per cent increase on figures from 2004. In 2008, almost a third of one per cent of UK homes will have to be relinquished back to lenders.
The bleak outlook for repossessions, a five per cent decline in house process, and a 25 per cent reduction forecast in property sales are all products of the unstable economic environment, the report said.
Mortgage lending will continue to be severely restrained and rates will fail to reflect the recent reductions in the Bank of England base rate until the problems in the wholesale money markets are rectified.
However, while these figures are cause for concern, the report is mindful that they should be kept in a historical context, and that they will remain far below the figures of the early 1990s, when 75,000 homes were being repossessed each year and unemployment reached towards nine per cent.
The authors of the report predict unemployment to remain below 3.5 per cent this year.
Nur Ata, a senior economist at cebr and one of the report’s authors, commented: "As the credit crunch bites people will have to spend a greater proportion of their incomes on mortgages than they have done in the recent past.
"This is despite the fact that the Bank of England has cut its base rate recently and further rate cuts in the future. When affordability becomes a problem the inevitable result is a rise in the number of repossessions."
John Ward, managing economist at cebr added "However, the reasonably benign employment situation means we don’t expect repossessions to reach anything like the level seen in the early 1990s."
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