ROOF Blog

Meanwhile, the Organisation for Economic Cooperation and Development said yesterday that financial service firms must make sure their customers understand what they are letting themselves in for when signing up for mortgages, consider loans and other products. The OECD has just released new guidelines designed to avoid a repeat of the sub-prime mortgage crisis and subsequent credit crunch that caused the worldwide recession.

Shelter has rereleased research showing that thousands of homeowners with high risk sub-prime mortgages could lose their homes before the end of summer, after a survey found that more than 22 per cent of respondents are struggling to pay their mortgage. More than 160,000 households are either struggling or falling behind on payments are resorting to borrowing from friends, using credit cards or taking out loans to pay, while more than 35 per cent – the equivalent of 260,000 households – say they would be unable to met their mortgage payments if their income dropped significantly.

A financial thinktank, the Financial Inclusion Centre (FIC), has warned that predictions of a fall in the number of repossessions are unfounded as official figures do not take into account sub-prime lenders details. FIC said it expected an increase in the number of repossessions, particularly in middle and lower-income groups who ‘mortgaged themselves to the hilt’, to be driven by rising unemployment. Research showed that sub-prime lenders had a higher proportion of customers likely to lose their jobs and default on their homes, and were also more likely to press for repossession. The warning comes after the Council of Mortgage Lenders said it expected to revise down its prediction of 75,000 homes being repossessed this year.

A coalition of charities, including Shelter, which pushed for better government measures to help vulnerable people stay in their homes, has warned that while mainstream lenders have improved their treatment of homeowners, those with sub-prime and second charge loans were not getting the same treatment. Research has found that 51 per cent of advisers had seen an improvement in the procedures from mainstream lenders, but only one in five have seen any improvement in arrears collection for the sub-prime and remortgaged homeowner. 

The number of households finding it difficult to pay debts on time has risen to its highest ever level, according to Standard & Poor’s. The number of sub-prime mortgages with overdue payments rose to 28.6 per cent of all mortgages outstanding, in the fourth quarter of 2008, while the overall rate of delinquencies rose to more than 6.4 per cent at the end of December – the highest level since S&P began publishing the figures. According to S&P sub-prime mortgage are becoming more affordable as their standard variable rates drop into line with the Bank of England base rate.

Repossessions among sub-prime borrowers accounted for 30 per cent of all repossessions in the UK during 2008, Fitch Ratings said yesterday. Despite the sector comprising less than 10 per cent of the entire UK mortgage market, approximately 12,200 properties repossessed last year were from so-called sub-prime borrowers, and the numbers gathered pace during the year, with more properties repossessed in the fourth quarter than in each of the previous three quarters.

A fifth of households are struggling or falling behind on their mortgage repayments, according to research by Shelter. In a survey of sub-prime borrowers, 5 per cent expect to be repossessed in the next six months, with more than 36 per cent saying they would be unable to meet mortgage payments in full if their income dropped significantly.

Prime mortgage borrowers, at least one month in arrears, have risen 50 per cent to 3.24 per cent of prime loans by the end of September compared with a year earlier. The figures, from Standard & Poor’s meant that combined with falling house prices will put pressure on prime ratings for the first time. The percentage of borrowers in ‘serious’ arrears – defined as 90 days or more overdue, increased to 1.16 per cent of all loans, up from 0.96 per cent.

Details of the homeowner mortgage support scheme announced by Gordon Brown last week have been released and fewer than 10,000 homeowners are likely to qualify. The critieria to qualify for the deferment of mortgage repayments for up to two years includes having a mortgage of less than £400,000; borrowers having no more than £16,000 in savings; or not be in receipt of mortgage rescue assistance. However, it has emerged that the UK’s eight biggest lenders have only agreed ‘in principle’ to the idea, while sub-prime lenders, considered responsible for half of all repossessions, will not join the scheme at all.

Standard & Poor’s (S&P) has recorded its highest ever level of arrears in sub-prime mortgages. The ratings agency said that arrears have increased by 24 per cent year on year as a result of house price decline, refinancing problems, and a lack of affordability. Mortgages taken out in 2005 and 2006 now have the highest 90+ day arrears rates and these are ‘rising sharply’. An analyst at S&P said the recent cuts in interest rates should improve the affordability of mortgage payments, however a worsening economic environment is likely to result in further increases in repossessions. It also found that the average time from repossession to sale of properties was around five months.