It is a fact of life that one person’s misfortune can be another persons opportunity, so any discussion about property finance has to include a quick consideration for what happens when things go wrong.
When a property is repossessed it will inevitably end up in an auction, resulting in a lower price for the seller and a potential bargain for the buyer.
Repossessions on the Rise
Figures from the Council of Mortgage Lenders (CML) show that during 2006 [tag]home repossessions[/tag] were on the increase with a total of 17,000 repossessions taking place over the whole year. To help put this in to context there were 10,310 repossessions in 2005 and 6,030 in 2004.
So it can be seen that there is certainly an upward rise in the number of mortgages going wrong However it is yet to be seen whether the CML’s forecast of 19,000 for 2007 will be achieved. When considering these figures it is important to understand that these are historically very low, to put them into context there were 75,540 repossessions in 1991.
The Financial Services Authority (FSA) has publicly stated that it is concerned that a weaker economic environment could have a considerable effect on borrowers ability to keep up repayments, especially given that many of them have increased their borrowing recently.
The recent boom in property prices have in someway given a false sense of security to borrowers. Many have got used to the idea of property prices increasing and interest rates staying low. Given this feeling of security many homeowners have continued to borrow more, this is demonstrated by the increase in second charge loans and remortgages.
One interesting trend identified by the FSA in their “Financial Risk Outlook” report was that the majority of repossessions were for buy-to-let properties. One theory suggests that this is due to low capital growth in new build properties and low rental yields caused by large numbers of new-build rental properties in urban areas.
Although the FSA will continue to encourage brokers and lenders to make doubly sure that borrowers are properly vetted and informed about the financial risks associated with buying property, it is well known that borrowers are more interested in buying their dream property at any price. With competition withing the mortgage industry remaining high it is very unlikely that lenders will take any serious steps to change anything.