U.K. Repossessions Increased 12% in Third Quarter

By Jennifer Ryan

Nov. 21 (Bloomberg) -- U.K. home repossessions by mortgage lenders rose 12 percent in the third quarter as higher unemployment and the shrinking economy left more Britons unable to pay their debts.

Foreclosures totaled 11,300, compared with 10,100 in the second quarter, the Council of Mortgage Lenders, which represents British home-loan providers, said today. Applications to foreclose increased 9 percent to 38,511 and repossession orders jumped 24 percent to 29,516, the Ministry of Justice said on its Web site.

Prime Minister Gordon Brown last month ordered judges to ensure that home repossessions are only made by banks as a last resort as the country becomes mired in a recession. Unemployment jumped the most in 16 years last month and house prices dropped as banks curtailed lending, undermining consumers' ability to extend borrowings or pay down debt.

``Looking ahead, conditions in the wider economy suggest a worsening picture for mortgage arrears,'' Michael Coogan, director general of the CML, said in a statement. ``The government has taken some helpful steps towards targeted support for some of the most vulnerable households, but with a worsening economy now needs to make it a priority to go further.''

The CML's figures cover the entire U.K. and represent 0.1 percent of all mortgaged properties. The Ministry of Justice data is for England and Wales. The CML repeated its forecast that the total number of repossessions in 2009 will reach 45,000, compared with 26,200 in 2007.

Loan Arrears

The number of households in more arrears ``is likely'' to exceed its earlier prediction of 170,000, the CML said. Mortgages in arrears totaled 1.44 percent of outstanding loans in the third quarter, compared with 1.33 percent in the previous three months.

``Rising unemployment will lead to a marked rise in the number of forced house sales, and it will also reduce the number of potential house buyers,'' Howard Archer, economist at IHS Global Insight, said in a statement. ``Even if the government measures to tackle the financial crisis work on a sustained basis, it will clearly take time for confidence to improve and mortgage lending to pick up significantly.''

Brown and Chancellor of the Exchequer Alistair Darling are urging banking executives to resume lending after offering a 50 billion-pound ($75 billion) rescue to lenders facing big losses from the credit squeeze. Global writedowns have surpassed $965 billion since the collapse of the U.S. subprime mortgage market.

Tax Plans

Darling plans tax cuts and infrastructure projects to limit the recession, and will announce new measures in his annual pre- budget report to Parliament on Nov. 24. He will announce an agreement with banks for a three-month freeze on repossessions to allow borrowers to work out a deal.

``We are clearly determined to help people who are concerned with home repossessions,'' said Michael Ellam, a spokesman for Brown. ``Specific announcements will have to wait for the pre- budget report.''

The central bank reduced the benchmark interest rate to 3 percent this month, the lowest since 1955, as the slowing economy threatened to push the inflation rate below its 2 percent target from the current 4.5 percent. The bank forecasts the economy to contract through most of next year.

Falling house prices push a greater number of homeowners into so-called negative equity, where the value of the home drops below the amount of the loan used to buy it. The Bank of England has estimated that a 15 percent drop in house prices would push 10 percent of mortgage-holders into that predicament.

``The worsening economic climate is beginning to have a marked impact on both the levels of arrears and repossessions in the property market,'' Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said in a statement. ``With unemployment set to rise sharply as the recession bites, it is inevitable that both indicators will rise further in 2009.''

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net