The number of home foreclosures rose 15 percent between July and September this year compared to the previous three months, as mortgage rates soared and the cost-of-living crisis put pressure on family budgets.
In total, 700 foreclosed properties were taken from owners in the third quarter of 2022, according to data from UK Finance.
But it wasn’t just owner-occupied properties that saw a rise in foreclosures. The number of bought-to-rent properties taken into possession also increased 11 percent from July to September, to 390.
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Rising Payback – As mortgage rates and the cost of living rise, an increasing number of homeowners may find it difficult to pay their lender each month.
Home repossession or repossession is the process by which a lender takes possession of someone’s home because they have missed mortgage payments.
While the number of foreclosures is increasing, it currently still remains below pre-Covid levels.
Mortgage rates for residential and purchase-to-rent loans have increased significantly during the year, which may have contributed to homeowners not being able to meet their monthly payments.
On May 1 of this year, the average two-year flat rate among homeowners was 2.57%, but on October 1 it was 5.43%.
On a £200,000 mortgage, the hike increases monthly payments by £316, from £904 to £1,220.
While fixed-rate homeowners are protected until their fixed term ends, it means payments could increase substantially when they remortgage.
Those with tracker mortgages and standard variable rates are also likely to have seen their payments increase this year.
UK Finance figures show the number of household possessions is rising again after Covid-19
Citizens Advice research has revealed that more than a quarter of mortgage holders would be unable to pay their monthly payments if they increased by £100 per month.
Samuel Mather-Holgate, financial adviser at Mather and Murray Financial, said: “If mortgage rates continue to rise, we will inevitably see an increase in forced sales because the current situation is a perfect storm.”
‘Rising loan rates are combined with staggering energy bills and headline inflation affecting the cost of basics like food and clothing.
“Mortgage borrowers’ affordability stress tests may have been increased, but they assumed all else being equal, which they haven’t.”
However, the number of homeowners’ mortgages in default fell 1 percent in the third quarter of the year to 74,440.
Within the total, there were 28,910 homeowners’ mortgages with arrears representing 10 percent or more of the outstanding balance.
This was the same number as the previous quarter.
Recovery spikes coincide with higher rates
Wealth management firm Quilter also analyzed data on foreclosures and noted that mortgage applications rose 30 percent between July and September compared to the same quarter in 2021, from 2,832 to 3,680.
It said the number of possession warrants issued increased by more than 100 percent from 1,229 to 2,491. This is the legal document that tells a homeowner that their lender can take possession of a property.
Arrest warrants increased 157 percent from 947 to 2,437 and recoveries by county court sheriffs increased 91 percent from 390 to 744, he said.
Commenting on the figures, Karen Noye, Quilter’s mortgage expert, said: ‘A claim, an order, a court order and recoveries by bailiffs of the country’s courts are all steps in the process that ends with the recovery of a house.
With energy and food prices high, some people will start having a hard time heating their homes, eating and paying their mortgage and this will lead to recovery.
“Foreclosures spiked after the financial crisis, but since then, due to lenders taking a more proactive approach to helping distressed borrowers and also low interest rates, foreclosure levels have dropped dramatically.
‘However, in the face of the cost of living crisis, unfortunately the number of foreclosures is starting to rise again. Historically, periods of high interest rates have coincided with an increase in the number of foreclosures as people’s monthly payments rise to levels they can no longer afford.
“With high energy and food prices, some people will start to have a hard time heating their homes, eating and paying their mortgage and this will lead to recovery.”
Noye notes that the sharp increase in holdings compared to last year may be due to the FCA’s actions during the pandemic to limit holdings.
The FCA stopped all repossession proceedings from March to September 2020. After that, the FCA advised mortgage lenders not to start or continue repossession proceedings until April 2021, unless there were special circumstances.
As a result, there were only 10 foreclosures from April 2020 to March 2021.
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