House Prices Drop in Face of Potential Increase in Repossessions

Mon, 05 Sep 2011

Homeowners who are likely to face negative equity need to prepare themselves.

This is in light of the latest Nationwide Index which highlights that UK house prices slipped by 0.6% in August, to an average £165,914.

July witnessed a 0.3% gain. However, the building society emphasises that August’s decline does not alter the entire picture of market stability, with the annual rate of fall steady at 0.4%.

The mortgage lender is optimistic that house prices are going to remain level over the rest of 2011.

Nationwide’s chief economist, Robert Gardner, comments: "A further fall in employment would be likely to upset the relatively delicate demand/supply balance and put downward pressure on prices."

There is of course the threat of an increase in repossessions which can accompany a decline in UK house prices which could change the lender's approach in terms of forbearance.

Sharp drops in house prices have led to banks and building societies being provided with a strong incentive to exercise forbearance. However, quite alarmingly the Financial Services Authority has recently warned that overtly sympathetic lenders could be making problems for the future in so doiing.

New guidance states that where capital repayment mortgages are changed to interest only mortgages, the mortgage lenders ought to reassess risk level in their mortgage books and change balance sheets accordingly.

There is an argument that forbearance can lead to repossessed homeowners facing further losses.

With mortgage lenders being more careful regarding fair treatment of customers, more borrowers are not likely to meet their original mortgage commitments so they could repossession .

The Council of Mortgage Lenders is remaining mum on this matter, its members having undertaken 18,500 repossessions in the first half of 2011, with the figure 7% less than a year earlier.

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