The number of home repossessions rose 15 per cent between July and September this year compared to the three months before, as mortgage rates spiked and the cost of living crisis put pressure on household budgets.
In total 700 homeowner mortgaged properties were taken into possession in the third quarter of 2022, according to data from UK Finance.
But it was not just owner-occupied properties that saw a rise in repossessions. The number of buy-to-let properties that were taken into possession also rose 11 per cent from July to September, to 390.
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Repossession rise: As mortgage rates and the cost of living go up, an increasing number of homeowners may struggle to pay their lender every month
House possession or repossession is the process of a lender taking ownership of someone’s home due to missed mortgage payments.
While the number of repossessions is rising, it currently still remains below pre-Covid levels.
Mortgage rates for both residential and buy-to-let loans have risen significantly over the year, which could have contributed to homeowners not being able to meet their monthly payments.
On 1 May this year the average two-year fixed rate among homeowners was 2.57 per cent, but by 1 October it was 5.43 per cent.
On a £200,000 mortgage the hike increases monthly payments by £316 from £904 to £1,220.
While homeowners on fixed rates are protected until their fixed period ends, it means that payments could rise substantially when they remortgage.
Those on tracker mortgages and standard variable rates are also likely to have seen their payments go up this year.
Figures from UK Finance show the number of house possessions creeping up again after Covid-19
Research from Citizens Advice has revealed more than a quarter of mortgage holders wouldn’t be able to afford their monthly repayments if they increased by £100 a month.
Samuel Mather-Holgate, financial advisor at Mather and Murray Financial said: ‘If mortgage rates keep rising, we will inevitably see an increase in forced sales because the current situation is a perfect storm.
‘Increased borrowing rates are coupled with eye-watering energy bills and general inflation affecting the cost of basics like food and clothing.
‘There may well have been increased stress tests on affordability for mortgage borrowers, but these assumed everything else was equal, which it isn’t.’
The number of homeowner mortgages in arrears fell 1 per cent in the third quarter of the year to 74,440, however.
Within the total, there were 28,910 homeowner mortgages with arrears representing 10 per cent or more of the outstanding balance.
This was the same number as the previous quarter.
Repossession spikes coincide with higher rates
Wealth management company Quilter has also analysed the data on repossessions, and noted that mortgage possession claims increased 30 per cent between July and September compared to the same quarter in 2021, going from 2,832 to 3,680.
It said that the number of possession orders issued went up by more than 100 per cent from 1,229 to 2,491. This is the legal document which informs a homeowner that their lender can take possession of a property.
Warrants have increased 157 per cent from 947 to 2,437 and repossessions by county court bailiffs increased 91 per cent from 390 to 744, it said.
Commenting on the figures, Karen Noye, mortgage expert at Quilter said: ‘A claim, order, warrant and repossessions by country court bailiffs are all steps in the process which concludes with a home being repossessed.
With high energy and food prices some people will start to struggle to heat their homes, eat and service their mortgage and this will lead to repossession
‘Repossessions spiked after the financial crisis, but since then due to lenders taking a more proactive approach to helping struggling borrowers and also low interest rates the levels of repossessions have dramatically decreased.
‘However, in the face of the cost-of-living crisis sadly the numbers of repossessions is starting to climb again. Historically, periods of high interest rates has coincided with an uptick in the number of repossessions due to people’s monthly payments increasing to levels they can no longer pay.
‘With high energy and food prices some people will start to struggle to heat their homes, eat and service their mortgage and this will lead to repossession.’
Noye notes that the sharp increase in possessions compared to last year may be because of the actions of the FCA during the pandemic to limit possessions.
The FCA put a stop to all repossession proceedings from March to September 2020. After that the FCA advised mortgage lenders not to commence or continue possession proceedings until April 2021, unless there were special circumstances.
As a result, there were only 10 repossessions from April 2020 to March 2021.