A new report from homeless charity Shelter has revealed the towns and cities where contractor mortgage holders are at the most risk of having their property repossessed.

The charity analysed the number of repossession claims issued by mortgage lending institutions as well as social and private landlords in all the English local authorities. It discovered that one in three of the 93,500 claims for mortgage repossession in 2009 result in the buyer losing their property the following year.

London boroughs recorded the highest rate of repossession claims, while Manchester followed close behind with 17 out of 1,000 property owners in danger of losing their home.

The charity also examined eviction rates. People in London face the highest risk of eviction, with Manchester and Slough following close behind. One in every 111 households in those three cities are facing the possibility of eviction. Probably not surprisingly, the Shelter report identified a close link between unemployment rates and high rates of eviction.

Shelter’s chief executive, Campbell Robb, said the study paints a frightening picture of the many families who live in constant fear of losing their home. Around 33% of families are struggling to pay their housing costs, or have already fallen behind on mortgage or rent payments. For them, something like illness or redundancy could cause their finances to get completely out of control and result in homelessness.

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Concerns are increasing that mortgage lending institutions will soon start taking a tougher stance on mortgage defaulters leading to an increase in the number of properties repossessed.

Data recently released by the CML showed a 7% decrease in repossessions during the first six months of this year, compared to the comparable period last year.

In the second quarter of 2011, 9,000 homes were repossessed, 100 less than in Q1. In the first six months of 2010, there were a total of 19,500 repossessions.

However, the MD of xit2, Mark Blackwell, said contractor mortgage arrears and resultant repossessions are like an iceberg waiting to strike the market and there is trouble brewing below the surface.

Lenders are reaching breaking point and can no longer continue forbearance when a borrower has no hope of paying off mortgage arrears. He went on to say that there has been a considerable increase in repossessions from one mortgage lender after it changed its rules on forbearance.

The CML has estimated there will be 45,000 repossessions in 2012, a figure Blackwell says is conservative.
Chris Garner, a director of Obligo.co.uk said repossession rates have been kept artificially low as lenders have extended tolerance to late payers. However, this situation cannot continue indefinitely and once lenders alter their approach to forbearance, thousands of households could find the rug pulled out from under them.

CML data also showed that 78,500 people were in arrears of between 1.5% and 2.5% of their outstanding mortgage balance in Q2 this year, an increase of 700 on Q1. But there was a decrease of 2,200 in the number of people with arrears in excess of 2.5%.

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Recent research shows that contractor mortgage interest rates remained virtually the same last month although the rate on tracker deals did fall slightly.

The study conducted by moneyfacts.co.uk shows that the rate on tracker mortgages dropped from 3.79% in April 2010 to 3.47% last month. At the same time, two year fixed rate mortgages edged up by a mere 0.01% to 3.69% and five year fixes remained unchanged at 5.1%.

Some industry experts have predicted that the interest rate on fixed rate products will decrease in the next few weeks.

It also appears that some people could be locking their money away in fixed-rate bonds to fund their future mortgage lending. People who have adopted this approach can now obtain returns of 2.82%, the highest rate seen since September 2009.

Meanwhile, depressing figures from the Council of Mortgage Lenders show an increase in the number of mortgage repossessions in the first quarter of this year. The previous five quarters had seen a decrease in the amount of homes repossessed.

9,100 residential properties were repossessed in Q1, a 15% increase on the 7,900 recorded in the final quarter of 2010. However, this figure was still 10% down on the corresponding period last year and equalled the average quarterly number throughout 2010.

The director general of the CML, Michael Coogan, said that many households are likely to suffer financial hardship over the coming months. Mortgage lending companies have options available to help people through temporary problems but they will need to bear in mind the regulator’s concern that being too forbearing can be as bad as too little.

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Repossessions are set to rise, as are interest rates and tens of thousands of home owners could find themselves under increased pressure. The historically low base rate has allowed many people to remain in their homes for the last couple of years, but experts fear that situation will change before the end of the year.

Some desperate people might be tempted to enter into a sell-and-rent-back scheme. However, be warned; a lot of these are run by unscrupulous firms that will pay only half the market value of a property, tie tenants into costly rental arrangements and in some cases evict them within 12 months.

Last week, two SRB companies were reported to the FSA for unregulated activities. UK Housing Alliance (North West), a Manchester based firm, went into administration last June. Tenants of the organisation were only given 70% of the sale price and promised the remaining 30% if they paid top market rent for the next 10 years. These tenants have now lost that guarantee.

Mortgage lending companies should be keen to help mortgage owners remain in their homes. Repossession is complicated and costly and if you are struggling to meet your monthly contractor mortgage repayments, it’s worth sitting down with your lender and discussing other options. You could consider a remortgage or rent out your home and rent a cheaper one to live in.

However, it’s important to get financial advice before making any drastic decisions. Charities such as the Citizens Advice Bureau and CCCS have specialist debt advisers who can help.

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Financial outsourcer HML predicts that 0.3% of all mortgaged houses will be repossessed this year.

During the first six months of the year, it expects 15,557 homes to be repossessed increasing to 17,700 during the send half.

The worst rate of repossessions is expected to be in Northern Ireland at 0.83% whilst the lowest rate will be in the South West at 0.18%. Above average rates are likely to occur in London, the North East, the West Midlands and Wales.

Neil Warman from HML explained that last year’s downward trend will continue for the first six months of 2011 but, as macroeconomic factors impact householders and mortgage lending behaviour changes, repossessions will start to rise in the final six months.

This year, hard-pressed homeowners will be hit by rising inflation and increasing job losses. However, the impact of these will not filter through immediately.

Looking forward to next year, it would appear that repossessions will continue to increase slightly; probably to between 35,000 and 40,000.

HML obtains its information from 320,000 live mortgage accounts and is believed to be the most comprehensive set of forecasts available. The figures take into consideration the amount of people included in a contractor mortgage, other debts, existing credit facilities and recent repayment history.

Meanwhile, Taylor Wimpey has announced a new 95% LTV mortgage for first time buyers. The Take5 mortgage is a two year fixed rate deal in conjunction with the Melton Mowbray and Saffron Building Societies. The mortgage will be available on selected properties in East Anglia, East London and the East Midlands.

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Where is the best place to buy a property and what sort of home should you go for? There have been some useful surveys around recently that could give prospective house buyers some clues.

For example, a recent survey from Nationwide highlights the most affordable sub-regions in each English region. So, if you want to live in the North, your money will go furthest in Cumbria. If you need to commute into London to work, house prices in the Medway region comes out top of the Outer Metropolitan affordability stakes.

Property size will also have a role to play in the decision making process. Demand for smaller properties is increasing as the number of one-person households rises and this trend is set to continue over the next 20 years. Asking prices for one-bedroom flats and studio apartments rose by 1.5% last year. On the other hand, the asking price for larger properties decreased. The average three bedroom flat fell by 4.7%.

If you’re looking for a real bargain, take a look at the recently repossessed properties up for auction. The CML expects there to be about 40,000 repossessions this year.

Of course, even if you find your dream home at a bargain price, you still have to secure a contractor mortgage. The CML expects mortgage lending in 2011 will remain the same as last year, at just £135 billion. Because of this lack of funding, it expects to see just 860,000 property transactions during the year. In a normally functioning housing market, the figure would be more like 1,290,000.

It’s also worth remembering that the days of making a fast buck on property transactions are long gone. People now stay in one home for an extended period of time, not just a couple of years.

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The majority of people in the UK are dreading 2011 and two-thirds of British households expect to see the economy nose-dive again.

According to a recent survey for the Times, we are at our most pessimistic for 18 months as families ready themselves for more economic hardship.

40% of the survey’s respondents expect to get behind with paying bills and 20% think it will be hard to make monthly mortgage repayments.

The increase in VAT, which comes into force on January 4th, has meant that two-thirds of Brits expect to have less money to spend next year. Women are downbeat about their financial prospects, as are people of both sexes aged between 35 and 54. Lawyers, doctors and other professionals are the most pessimistic about the country’s economic future but they remain optimistic about the financial state of their own families.

The younger age group expect to see little change as far as their social life goes and a third actually believe their standard of living will increase next year.

The Times survey, which was carried out by Populus, was conducted after experts predicted rising interest rates over the next few months and increased property repossessions.

Despite the doom and gloom, British shoppers still spent more on Christmas this year than last. The average spend on presents was up by nearly 25% to £395. Although women are more worried than men about the family finances, they still spent more on festive gifts.

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House prices could decrease by a further 5% next year, according to Rightmove Plc.

The company responsible for the UK’s largest property website reported on Monday that the average asking price for a home is now £222,410, a drop of 3% on November and the second consecutive monthly fall.

This cut in prices adds further evidence to that already received from mortgage lending institutions on the weakness of the housing market. Rightmove claims prices will either remain unchanged in 2011 or, if there is a significant rise in repossessions, fall by up to 5%.

The commercial director of Rightmove, Miles Shipside, said sellers will need to be competitive next year. The combination of a lack of available finance, high unemployment, forced sales and the possibility of interest rate increases will outweigh the positive factors of pent-up demand and property shortages in attractive areas.

As often occurs, there is a north / south divide, with the north being the most likely to see falling prices. London is so far proving most resilient and Rightmove expects selling prices in the capital to rise by between 3% and 5% next year.

The West Midlands registered the largest drop in prices this month at 5% and although house values in London dropped by an average 2.7%, Camden and Hammersmith and Fulham actually bucked the national trend and posted gains.

There is still a conflicting picture of the state of the housing market depending on whose data you read. The Halifax claims that house prices dropped by 0.1% in November whilst LSL Property Services Plc and Acadametrics Ltd. claim prices rose to their highest level in 2 years.

Meanwhile, the Bank of England reported last week that the price of two-year fixed rate mortgages was reduced to a record low in November.

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House repossessions could well be on the increase next year as the effects of the government’s 40% cut in Support for Mortgage Interest rate start to have an impact.

The benefit is paid to people who are unemployed and at the beginning of October it was reduced from 6.08% to 3.63%. Since then, Shelter has seen a marked increase in the number of homeowners threatened with repossession asking for advice.

One lady has been informed by her mortgage lending company, Alliance & Leicester, that repossession proceedings will commence in January if she cannot make up the monthly shortfall of £400 caused by the SMI cuts.

One of the reasons that the government cut the rate was because, at 6.08%, some home owners received more than necessary to meet their mortgage interest repayments. Not only could the exchequer not afford this, it was also unfair to taxpayers.

One solution to the problem was to impose a bulk buy interest rate equal to the SMI rate. However, the CML rejected this saying that charging all borrowers with mortgage arrears an average rate would be a breach of individual contracts and would probably be successfully challenged in court. The CML also pointed out that there is a moral hazard involved in letting borrowers think that there is no obligation to comply with the terms of their contractor mortgage contract.

A seemingly fair solution to the problem has been proposed by the CML. The Council has suggested that SMI payments could be a second charge on a home so that the costs would be recovered if the borrower either remortgages or sells. For the meantime, we will just have to wait and see whether such a scheme will be implemented.

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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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The latest buy to let survey from the CML shows that the sector is showing signs of recovery.

24,900 buy to let mortgages were approved in the second quarter of this year compared to 22,000 in Q1 and 21,600 in the comparable period last year.

At the end of June, there were 1.26 million buy to let mortgages outstanding with a total value of £149bn and they accounted for 12% of all mortgages. This is the highest level we’ve seen since the end of 2008.

Michael Coogan, the director general of the CML, predicted that demand for private rented property will remain high as fewer first-time buyers can afford to purchase a property.

He says that UK financial institutions must ensure that finance is available for private landlords in order to meet the population’s housing demand.

The CML’s report also showed that 18,500 people had arrears of at least 1.5% on their outstanding mortgage. This is a slight improvement on the end of 2009 when the figure stood at 19,300. There was however a slight rise in the number of repossessions; up to 1,600 from 1,400 in 2009.

Whilst high deposits have meant that many people are unable to get their first foot on the housing ladder, a recent survey by Zoopla suggests that it works out cheaper to take out an interest only contractor mortgage on a property rather than renting in almost 75% of locations in the UK.

In fact data from Moneyfacts.co.uk suggests that first time buyers are becoming more active as mortgage rates decrease. The average fixed rate for first time buyers with a 10% deposit has dropped by 0.33% in the last six months.

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A new report from the RICS suggests that the UK’s housing market is suffering a fresh downturn as public sector workers become increasingly concerned about their job security and first-time buyers continue to be deterred by the lack of mortgage finance .

The Institution’s housing market survey discovered that property prices fell last month for the first time in a year. Some valuers and surveyors say they have been astounded by the ferocity of the downturn since George Osborne’s emergency budget.

An increase in the number of new properties coming onto the market has driven down prices, says the RICS. This surge can be attributed in part to the abolition of HIPs, but surveyors are also warning that repossessions are increasing.

A Huddersfield firm of surveyors remarked that repossessions are making up a high proportion of its monthly sales. However because these are at low prices there could be a knock on effect that results in values going down further later in the year.

To minimise the risk of encountering mortgage repayment difficulties, freelancers should be looking at more than the initial interest rate when they are shopping for a contractor mortgage, according to the CML. Sue Anderson, from the Council, advises people to take the time to scrutinise each deal in order to clearly understand the advantages and limitations of the mortgage before committing to anything.

Capped rate mortgages, which combine the best bits of both a variable rate and a fixed rate mortgage, are making a comeback. These ‘best of both world’ offers have been in short supply in recent years but four lenders, including the Coventry and Britannia building societies, have now started offering them again.

Meanwhile, mortgage fraud cases are on the increase in England and Wales. The KPMG’s fraud barometer found that 21 cases of mortgage fraud totalling £96m were reported in the first half of 2010. Last year the total was £77m for the entire year.

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