Are we home and dry when it comes to repossessions?
The UK, like many other countries, has been through a tough time over the past couple of years in terms of finances, and one of the side effects of the financial crisis has been the soaring level of repossessions that have taken place.
The banking industry has been brought to its knees since the onset of the global financial crisis, and consumers have been seriously affected by both the financial crisis and the recession. This toxic combination has led to repossession levels having soared over the past two years.
However, over recent months there have been signs of improvement in all areas, and with the recession over predictions that were made by various groups over the levels of repossessions that would be seen this year have been downwardly revised to reflect the improvements.
The government has also been taking steps to try and reduce the level of repossession by ensuring that repossession action is only taken as a last measure and that banks try other strategies to try and resolve arrears issues without taking the home from the borrower.
The base interest rate has also helped to reduce the level of repossession, and for the past year the base rate has been at an all time low of just 0.5 percent, which has made mortgage repayments more affordable for homeowners, reducing the level of arrears and minimising the risk of repossession. All of these factors have made things look a lot brighter for homeowners.
However, despite the brighter outlook industry officials have recently warned that the situation with repossessions could rapidly change if there are any changes in the economy and if interest rates increase.
Whilst the base rate has been at rock bottom for a year now many are starting to speculate over when it may increase again, and once the base rate does increase many homeowners could once again be plunged into financial difficulties when it comes to keeping on top of their repayments.
The warning has been issued by the UK’s financial regulator, the Financial Services Authority, and the group has said that it is not just the movement of the base rate that could affect peoples’ abilities to make repayments on the mortgage.
The FSA said that homeowners that are accruing other types of debt such as credit cards and loans could be the most badly affected because any increase in interest rates could mean that they have to find more money to deal with all of these various repayments.
One economist stated: ‘I think we could see a very long tail for arrears and repossessions with high numbers of people losing their home stretching back for many years to come. People will realise that more of their income is being taken up by higher taxes or greater debt levels.’
Tags: homeowners, personal finance, repossession, mortgage, financial crisis, Financial Services Authority‘Any sudden changes in the economy will seriously widen out the number of people that are going to be affected.’ The FSA added: ‘This recession is really quite different than the early 1990s. We have households which are more indebted than they were in the past and that creates a vulnerability.’
