Repossessions And Distressed Sales
October 17, 2007
The number of home repossessions is on the increase according to recent figures. It is a frightening prospect for anyone starting to have difficulty with mortgage repayments, and that is increasing with the five base rate rises in the last 12 months, and the extremely high likelihood of more to come before the end of the year.
Worryingly, the number of repossessions may be hiding a wider, bleaker truth. That could be that the number of forced or distressed sales is going up as people try to avoid repossession. Opinion is that for every repossession there is a forced sale, but these figures are not known or published.
In 2006 the number of repossession court orders was 89,857. Out of this number 19% ended in repossession of the property. Yet in 1993 there were 105,283 repossession orders and 56% resulted in actual repossession.
Some experts say that the market in 1993 was different from what it is now. Those struggling with repayments would be better off selling their property and brokers will advise people struggling with repayments to sell and downsize. There is, they say, no particular reason why current figures should be similar to hose of 1993. Better awareness, and better advice should enable people to make better informed decisions these days. It is better for people to sell rather than be repossessed for many reasons, directly financial and indirectly for credit history.
Companies marketing distress sales are appearing in ever increasing numbers. In these cases the company buys the house and rents it back to the seller. The bad news is that they will buy the house at 15-20% under market value, but there is no guarantee that they will be allowed to stay in the house, unless that is specifically stated in the agreement. There may even be a catch with tenancy of the seller as landlords routinely run credit checks on their clients these days.
For people who have reached the end of the line and a repossession order is days away, a distressed sale may be a valid choice to make, but unless under imminent threat there are better options available, like selling on the open market and using the proceeds on a smaller house.
The repossession figures may come to represent a crisis in coming months. Many homeowners have yet to feel the full impact of the 1.25% rise on the base rate since last August, and most experts believe the rate will reach 6% before year-end.
The suggestion that lenders have been too generous with their lending in the past is widely rejected by industry experts. Although there are always likely to be affordability issues for some people, lenders prefer to avoid problems. Predicting the future for interest and individuals is no easy task, even for banks! In fact, repossessions have a variety of causes from break downs to job losses. Higher interest rates are not the only cause – but they certainly don’t help.
Repossessions may rise, but they’re not in anyone’s best interests. Struggling mortgage borrowers should seek advice before it gets too late.
Alan Wright
17th October 2007
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