While the recent rate of home repossessions expected to occur this year has been adjusted downward, there are industry experts who are warning the public that bad debt in regards to mortgages could be on the rise this autumn.

During the first half of the year, the mortgage arrears rate declined by 5 per cent, and while the Council of Mortgage Lenders recently announced a revision for its projected house repossession figures down to 39,000 from its initial estimate of 53,000, some mortgage insiders feel the new figures could be clouding a more serious issue looming on the horizon.

One such expert, Payplan’s managing director John Fairhurst, commented on the possibility, stating that while mortgage repayments have shrunk due to low interest rates, it is an inevitability that higher rates will begin to prevail once the bubble bursts. The road ahead could be bumpy, Mr Fairhurst further said, in conjunction with increases in both the unemployment rate and the standard cost of living.

Mr Fairhurst concluded by saying that Payplan was experiencing record high numbers of homeowners seeking out the financial advice company for help, in spite of the low interest rates currently out on the market, and that as a result Payplan will be cautious in regards to the new figures released by the CML.

Over 60 per cent of new callers to Payplan consisted of homeowners, in comparison to 40 per cent two years ago.

In related news, a spokesperson for Hargreaves expressed concern recently regarding low mortgage interest rates, stating that there are a large quantity of homeowners that are approaching negative equity in their homes due to the historically low interest rates, but repossessions could develop into a substantial problem if mortgage payments begin to outstrip rental costs.

The Hargreaves representative then made the suggestion that interest rate increases could lead to disastrous results for Britain’s still-recovering economy, which would then lead to homeowners being unable to make their mortgage repayments and result in a large increase in the incidence of repossessions.

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According to new figures published by the Council of Mortgage Lenders (CML), contractor mortgage lending increased by more than 8 per cent in the last calender month.

The CML data comes just days after the Bank of England dampened any  fears of an imminent rise in interest rates.  The amount of mortgage credit supplied during May was £11.2 billion, representing a 9 per cent increase on the previous month and nearly 15 per cent on this time last year.

Although buoyed by the figures, many mortgage commentators were quick to point out that May’s lending was still nearly £2.5 billion down on the amount advanced in the final month of 2009, when more first time buyers were keen to exploit the stamp duty holiday. The CML said that the UK mortgage market remained relatively subdued, and that total borrowings in 2010 will ‘marginally undershoot’ its original expectation of around £155 billion.

Gross contractor mortgage lending is now at its lowest point since April 2000 according to the latest figures released by the CML. Lending dropped by 12% between April and March and now stands at £10.2 billion. The Council says that the fall was due to the seasonal decline as Easter was in April.

Although there are now more mortgage products available it’s still hard for contractors to purchase a home unless they have can put down a large deposit.

The cuts in public spending that were announced at the beginning of the week are likely to slow down the economic recovery and this will have a knock-on effect as far as the housing market is concerned. However it is expected that interest rates will remain low for the immediate future.

One area that will suffer from government cuts is the Kickstart programme. Kickstart restarts previously pulled private housing projects and the Homes and Communities Agency has already confirmed that £50m of this year’s £420m budget will be chopped and a further £100m will go from low-cost home-ownership schemes.

Kickstart came to life in the last Labour budget and was designed to bolster housebuilders who had stopped construction during the recession. £400m was invested in the project last year with the result that building began on 9,000 new houses. The UK currently has an acute housing shortage and yet in 2009 we saw the lowest total number of homes built since 1923; just 120,000.

Although the coalition does plan to address some housing priorities, it is as yet unclear exactly what form these will take. The support schemes that were introduced during the recession are due to end soon and the repayment date is getting closer. This will leave a funding gap that needs to be addressed, otherwise lending will be curtailed further.

Savills estate agents believe the situation in the housing market has now reached a critical point. There is currently a lack of demand although more properties are being put on the market. They hope that any further decline in the market could be stalled by the welcome abolition of HIPS.

On the down-side, the new rate changes on Capital Gains Tax might act as a deterrent to residential landlords and people wanting to buy a second home.

We will have to wait until the Chancellor delivers the emergency budget on June 22nd to learn the full extent of the cuts and the potential long-term ‘damage’ they could have on the housing market.

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The FSA’s proposal to introduce an approved persons regime has come under fire from the Council of Mortgage Lenders.

Whilst the CML supports the bid to stop rogue individuals operating in the contractor mortgage industry, it says the justification to impose the regime on lenders as well as intermediaries is unclear.

Their argument revolves around the differences between lenders and intermediaries and they do not believe that the FSA has recognised these.

According to the CML, lenders are already subjected to sufficient regulation and do not suffer from a lack of training or competence. They estimate that 14,500 employees from lenders could be captured by these proposals.

The CML wants the FSA to modify the proposals regarding the debt management of people with mortgage arrears.

One such area that is concerning them is the requirement to record telephone calls and keep the call for three years after the overdue debt has been cleared. They believe this to be an excessive time and could lead to lenders keeping recorded calls for several years.

There are also concerns that the wording of the new regulations is not clear, fair and transparent and that although contractor mortgage lenders will be required to make significant changes to their systems, consumers will not see a proportionate benefit.

Finally, the Council believes that the new regime will be very costly and could delay the housing market recovery.

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