Given the super-low mortgage rates that have been the norm for some months now, it should come as no surprise to learn repossessions have come down as well.
The first three months of the year saw 3,000 homes repossessed. This is according to data from The Council of Mortgage Lenders. However this came down considerably over April, May and June this year. During that three-month period the number of repossessions dropped to 2,500.
A major fall compared to the same period in 2014
This time last year we were looking at a total of 5,400 homes repossessed during that three-month period. Thus the figure has dropped by an impressive 2,900 since then.
Clearly the incredibly-low interest rates have been the reason behind this. However we have been regularly reminded of late that these low rates will not continue. As such the predictable – but welcome – note of caution also came from the director general of the CML, Paul Smee. He said people should “think ahead” to consider how they might be impacted by a rate rise in the near future.
Mortgage arrears are also dropping
The number of mortgages currently in arrears at 2.5% or more of the total mortgage balance amounted to less than 1% of the total mortgages currently active. This amounted to 106,400 mortgages in total. The vast majority of these were for owner-occupiers rather than buy-to-let mortgage holders. These figures are also lower than they were three months ago.
The trend is also far more significant than these two quarters alone might indicate. For example, back in 2009 a total of 48,900 homes were repossessed by the mortgage lenders. This works out to approximately 12,000 homes every three months. Compare this to the 2,500 homes repossessed during the past three months and you can see just how stark that contrast really is.
The question then is whether this trend will continue, or at least stabilise, when rates do begin to rise. Are homeowners ready for a potential rise? Can they cope if their mortgage payments start increasing? A proportion of them will be able to, but there is a distinct likelihood that some people will find themselves in trouble trying to make ends meet. No one knows how many homeowners may struggle even with a modest increase to a base rate of 1% or even 2%.
In the long-term it is expected that base rates may reach a level of around 2.5%. This would make a significant difference to mortgage payments compared to how much people are likely to be paying at the moment.
This is all hypothetical until an actual rate rise occurs and people are faced with the reality of higher payments. However since rises will likely be gradual, it is hoped that people will be able to make gradual adjustments to higher mortgage payments each month. A lot will depend on how many people are currently struggling but just about managing to keep going. A slight rise could be catastrophic for them.