Figures released today (3rd February 2006) from the Department of Constitutional Affairs showed that the number of households in England and Wales in the early stages of the repossession process rose sharply in the fourth quarter of 2005.

Actions entered by lenders, the first stage of repossession, rose 50% over the past year to 31,018, the highest level since the third quarter of 1993. Orders made (orders made by courts to repossess properties) were 58% higher over the past 12 months at 18,784 in quarter four.

The main reason behind the upturn in repossession activity is the rise in interest rates that began at the end of 2003 and continued to August 2004. These rises increased mortgage interest payments by a substantial margin, and therefore an upturn in repossession activity is unsurprising.

However, the 0.25% interest rate cut in August, has eased the pressure on indebted households. Figures from the Bank of England show that the average interest rate on a standard variable mortgage fell 14 basis points in the fourth quarter, the second consecutive quarter of decline. In addition, the average interest rate on a five year fixed mortgage remains very low at 5.15%, having fallen dramatically in the past year.

Nevertheless, the large rise in the numbers entering the early stages of the repossession process are now feeding through to actual repossessions. Figures released today from the Council of Mortgage Lenders reveal that 5,630 properties were taken into possession during the second half of 2005, the highest figures since the first half of 2002.

While the half yearly number of possessions has risen 87% since the period a year earlier, they remain at extremely low historical levels, both in absolute terms and as a percentage of mortgages outstanding.

The moderate rises in unemployment of the past 12 months and higher numbers entering the initial stages of the repossession process, should mean that repossessions will continue to increase over the next few quarters. But its impact on the overall housing market will be limited, and will not stall the recovery in market activity and prices witnessed in recent months.

Source : RICS