The future of the housing market

Fewer property repossessions are expected this year. Christina Jordan takes an in-depth look at what this means for the housing market.

It seems like the mortgage and housing markets are pumping out nothing but good news at the moment. And the latest release from the Council of Mortgage Lenders (CML) is another example of the prevailing positivity in the industry.

Last week, it cut its repossession forecast to 48,000 for 2009. This is a huge drop from the 75,000 repossessions it anticipated a year ago when it did its initial forecasts.

Why has forecast for repossessions been slashed?

The CML recognises that fewer people are now at risk of possession for a few reasons. Firstly interest rates have remained at their historic low of 0.5% since March this year. When the trade body made its initial prediction there was no way of knowing that rates would either fall so low, or stay there for so long.

The result of the 0.5% Base Rate for many homeowners is reduced payments -- at least for those on a variable rate. And even borrowers who have come to the end of a fixed rate this year have had the option of reverting to a standard variable rate (SVR) that is probably extremely low. Lloyds TSB's SVR for example is just 2.5%.

Borrowers who may have fallen further into arrears, or fallen into difficulty in the first place, have been buoyed by low mortgage repayments, making servicing their homeloan more affordable.

Another factor to consider is that lenders are now showing much greater forbearance to those borrowers who are struggling with repayments. Many major lenders have agreed not to start possession proceedings until borrowers have been in arrears for at least six months.

Government schemes such as the Mortgage Rescue Scheme are also helping.  This scheme operates in conjunction with Registered Social Landlords (RSL) and has two elements. Borrowers can benefit from 'shared equity' where the RSL provides an equity loan that enables their mortgage repayments to be reduced; or with the 'Government Mortgage to Rent' route the RSL purchases the property and the applicant pays rent back at a level they can afford.

Changes to Income Support for Mortgage Interest has also meant fewer borrowers have fallen deep into arrears because State support now kicks in earlier -- at 13 rather than 39 weeks.

What does it mean for you?

If you are a borrower struggling to meet your repayments the Government and lenders can now offer you some assurance that everything possible will be done before possession proceedings begin.

As always the best advice is to seek independent professional guidance (Citizens Advice is a great starting point) and to speak to your mortgage lender as soon as possible if you are at the early stages of financial problems.

For those who are not at risk themselves but who live in an area that has seen many repossessions, the fact that the CML expects fewer repossessions is undoubtedly good news. After all when a property is repossessed the lender usually tries to get rid of it quickly to prevent the borrower's debt spiraling. While they are duty bound to achieve the best price possible, in reality many repossessed properties sell for less than market value -- often through auctions for example.

This can pull down prices in a certain area or street if there have been a number of possessions - an issue has been particularly acute in some new-build apartment blocks where reams of empty flats are then sold on for a large loss, which impacts heavily on the existing homeowners in the block. The reduced repossession forecast is therefore good news for indirectly affected neighbours.

Of course, it will mean there are less bargains around for opportunist buyers -- either first-time buyers with substantial deposits or, often, buy-to-let investors looking for a cash bargain. Many repossessed properties have been snaffled up in this way over the last two years and the fewer properties that end up being repossessed the fewer opportunities to bag a bargain there are.

Is everything rosy then?

Not really. Firstly 48,000 repossessions is still a huge number -- for example in 2006 there were just 17,000. We should not become complacent about the number of people who will lose their homes this year, even if it is fewer than previously expected.

Secondly, the CML admitted that uber-low interest rates have helped many borrowers to manage their repayments who would have otherwise struggled. The worry is that while rates are expected to stay at their current level for at least six months, there are no guarantees. Plus they are still predicted to increase at some point next year. This could lead to payment shock for many borrowers and cause real problems for those who are just scraping by financially. It could be that repossessions are lower than expected this year, but that next year they will rise significantly.

Indeed the CML already predicts that there will be more repossessions in 2010, predicting 53,000 compared to this year's 45,000. And that's assuming rates remain low.

It could be that we have an arrears time bomb ticking away and unexpected interest rate rises, perhaps necessitated by a rise in inflation, could be just the thing to set it off. Continued unemployment thrown into the mix means that today's low rates are masking some huge potential problems.

But we should be positive -- after all the CML has reduced not increased its repossession estimates for this year, and in every property that escapes repossession this year is a family that gets to enjoy Christmas in the comfort of their own home.

Cut your mortgage costs

If you want to cut your mortgage costs, the first thing to do is to watch this video: Getting through the mortgage maze.

Next, use lovemoney.com's innovative new mortgage tool to find the best mortgage for you online, and adopt this goal: Cut your mortgage costs.

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.