Repossessions set to rise in second half, warns HML

A DOUBLE whammy of rising inflation and interest rates is expected to force an increase in home repossessions in the second half of 2011, according to detailed analysis of mortgage accounts.

HML, the financial outsourcing firm, said 0.3 per cent of all mortgaged properties – 33,257 homes – will be repossessed during the year. Repossessions will fall during the first half of the year and then rise during the second half, based on a study of 320,000 live accounts.

The Skipton Building Society subsidiary said Northern Ireland is expected to experience the worst level of repossessions in the UK, with rates significantly higher than other regions.

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It blames this on the 10 per cent fall in house prices over the last year, combined with the region’s links to the troubled Republic of Ireland economy.

On the UK mainland, repossession rates are likely to be above average in Wales, London, the West Midlands and the North East, while the South West is forecast to see the lowest proportion of repossessions in the UK by a considerable margin.

Repossession rates in Yorkshire are expected to be on a par with those in the South East.

Neil Warman, chief commercial and finance officer, said: “Despite the challenging economic environment, the downward trend in repossessions we saw last year is set to continue for the first half of this year. Repossessions will then begin to rise during the second half as a number of macroeconomic factors start to impact on homeowners and influence lender behaviour.

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“Of particular concern this year will be the impact of rising inflation and interest rates on hard-pressed homeowners and the effect of continuing job losses.

“However, these are unlikely to feed through into increased repossessions during early 2011. Looking at 2012 we see increased affordability pressures for borrowers who are in work together with the lagged effect of job losses in the public sector and benefit cuts.

“We forecast this will lead to a slight increase in repossessions during the year.”

HML said many high risk mortgages taken out during the height of the boom in 2006 and 2007 have already gone into repossession, which will have a positive effect on the overall number of repossessions in the coming years. Fewer first-time borrowers and tighter lending criteria are also helping to reduce repossessions.

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But HML also said the large number of people with high levels of arrears combined with house price falls and the reduction in mortgage interest relief are the main upward influencers.

The company looked at the number of people included in the mortgage, levels of other debt, credit facilities and recent payment history to predict future borrower behaviour.