Friday, February 08, 2008
Fewer repossessions than feared
Posted by David Smith at 09:45 AM
Category: Thoughts and responses

The Council of Mortgage Lenders has reported that there were fewer mortgage repossessions - the proper word is possessions - last year than feared. It had expected 30,000 but has today reported just over 27,000, with virtually no change between the first and second halves of the year. This may also mean that the 45,000 possessions figure feared for this year is also too pessimistic. Details here.


The cause-effect relationship is perhaps the key here.

House prices have started to fall, but the falls have been far. If you were a BTLer in trouble, the rational thing to do right now would be to continue paying and avoid reposession while you market your property(ies) and hope that you can bail out with some profit, or at least at break-even. Likewise if you are an owner-occupier.

The corner will be turned once (if) house price deflation becomes more apparent and established. Even if there are no further falls in house prices (very unlikely), the annualised figures will start to show an annualised fall by summer. Once this happens, and once people that are close to the edge (and I don't think that anyone doubts that there are plenty of them) realise that they can't sell their properties at break-even prices, then the fun will begin. Eventually it becomes rational to stop paying those monthly payments (one suspects financed in part through unsecured lending) and plot to walk away. This approach has become widespread now in the US, so there is a precedent to observe.

Once (if) this dynamic takes hold then reposessions will accelerate; as they do so, house price deflation will also also accelerate as discounted properties hit the market. You then have a positive feedback loop that could produce dramatic results.

In summary, i don't think that the current repossession figures are that relevant (although they are of course increasing). What is more relevant is what happens in summer and autumn - by then the dramatic declines in mortgage approvals will also be showing through in the price statistics, and it could well be the start of a real upset.

Posted by: Tom Gumbrell at February 8, 2008 06:16 PM

Or maybe not. Flat prices from now on would see the Nationwide index turn marginally negative on an annual basis in September, remain marginally negative for 2-3 months and then become, well, flat. A flat Halifax series would turn negative by June but would become positive again come October. In 2004-5 the period of flatness lasted for 8-9 months. The low point for annual house-price inflation was 1.8%. This time may be different, not least because of the credit crisis, but I don't need to remind you that plenty of people were predicting exactly the kind of scenario you are setting out now back then.

Posted by: David Smith at February 8, 2008 07:21 PM


Re the CML beating their forecast, that is a non event. I guess we can all make pessimistic forecasts and feel relieved when they do not materialize...
But if we compared vs previous years' actuals...
"Council of Mortgage Lenders has revealed that the number of home repossessions has passed 27,000 a rise of 21% on last year. Its the highest figure since 1999. The number of mortgages in arrears rose by 8.6% compared to 2006, according to the CML figures."
I guess "last year" means 2006. And that "highest figure since 1999" does not sound too good.

Can I bring your attention to another topic? What do you make of certain statements by Professor Nickell? What role did he havein the deliberate move by the BoE to prop up house prices (you rememberthe famous statement by Lord George)

A few months ago, Professor Nickell predicted that house prices will rise to 20x average salaries in the next decade. More recently, that BTLetters are responsible for "just 7%" of house price appreciation (he did not say since when, but you can probably guess 2003, when BTL picked up some speed).

Then, you have probably seen this speech of a few years ago. It makes an interesting read.

"The level of house prices today is apparently very high in the sense that it is well above its
average level relative to earnings (see Figure 3). Currently, house prices are close to six
times average earnings and this ratio would have to fall by around 32% to reach its
average level since 1982. As we shall see, however, there are good reasons for believing
that today the ratio of house prices to earnings in equilibrium may be higher than the
average ratio since 1982. Precisely how much higher is very uncertain. Furthermore, the
length of time it will take for house prices to get back to the equilibrium ratio relative to
earnings is also very uncertain. This double uncertainty explains why commentators and
analysts produce such a wide variety of prognoses for the housing market, from the very
softest of soft landings to crashes of dramatic proportions."
"Given the above discussion, it is obvious that there is a significant probability that house
prices will fall at some stage. Despite this, it is quite possible that house prices will not
fall at all, although they are very likely to go down relative to earnings (that is, house price
inflation will fall below around 4.5% p.a.)."

Sorry for the long comment.

Posted by: Michele at February 9, 2008 10:30 AM


Does this data reflect on the ever increasing "sell & rent back" schemes, that are all over the tabloid back pages at present?.

If it does't then you need to find out if such data is available & compare the difference to the CML stats. Because without the sell & rent back option there, then surely it would have resulted in more repossessions?

Posted by: Matthew strange at February 9, 2008 11:17 AM

You're a terrier, and I admire that, but occasionally in your anxiety to get to the bone you get a bit carried away. The National Housing and Planning Advice Unit, which Steve Nickell heads, said by 2026 house prices for first time buyers could be 10 times earnings (not 20), up from seven now, without a big increase in supply. He and the NPHAU are on your side in terms of wanting to do something for those unable to buy. It believes buy-to-let has had a small impact on house prices, raising their level by up to 7%. Its research is available at:

In terms of the repossession numbers, the significance for me was that they fell between the first and second halves of the year, against expectations of a substantial increase. They will go up this year, but probably to substantially less than 45,000. I don't know whether sell to rent is of any statistical significance.

As for Nickell's views on prices, the speech to read is this one: - particularly the second half, where he provides a cogent explanation for the revaluation of house prices. He even provides me with a small acknowledgement. You'll see that he also takes issue with the suggestion that the MPC could ever have targeted the housing market; Lord George's comments on that were uncharacteristically imprecise - he meant to say that the committee was deliberately trying to boost domestic demand and consumer spending.

Posted by: David Smith at February 9, 2008 11:38 AM


I would guess that "sell to rent" is statistically significant. My local free paper has an outer cover dedicated to persuading people to do this rather than face repossession, every week and it has been like this for about a year now. They wouldn't continue with the expense of advertising if it wasn't worthwhile.

Just because you or I wouldn't be tempted, it would be unwise to assume that others wouldn't, even though they are obviously spectacularly bad deals. I feel much the same about home delivery pizzas at 10-15 each and the flyers for them that I get through my door every week. Personally, I can't imagine why anybody ever buys them when they can make a much better pizza themselves in no time (we do) at a fraction of the cost, but nevertheless my local town centre is full of home delivery pizza places....

Posted by: HJHJ at February 9, 2008 08:53 PM

I tend to agree with the posters' comments about the sell-to-rent phenomena. Many companies have been doing this for months. There has been plenty of main stream press comment about it. For a new business sector to gain such prominance in such a short space of time, business must be brisk. Ditto the amount spent on advertising etc.

I've no idea where to find stats on STR - I doubt they exist. However, it isn't difficult to imagine that three thousand properties have been purchased by these companies over the past year which would have otherwise gone to repo -That would bring the repo amount to CML forecast.

Posted by: Tom Gumbrell at February 10, 2008 10:09 PM

I can't imagine that sell-to-rent is going to be allowed to continue unregulated, given the stories about it.

Posted by: David Smith at February 10, 2008 11:10 PM

I think that is an uncharacteristicly naive statement David.

For years unscrupulous sharks have getting Mr and Mrs dumbeddownandverydumb to put their life savings into inner city BTL flats after charging them thousands for BTL 'investment' seminars.

The FSA didn't raise a finger, BUT this was malpractice mis-advising on massive (ponzi) investments to the man in the street. So why would it now? I used to work as a regulator for the FSA (when it was the S&S function of the Bank), and I can't say that I was filled with confidence. I think NR is a case in point.

Posted by: Tom Gumbrell at February 11, 2008 10:21 AM

There's a difference. I haven't seen any evidence of MPs or consumer groups calling for action on BTL promoters. There is, however, a head of steam building up on the unregulated nature of sell to rent.

Posted by: David Smith at February 11, 2008 10:32 AM

David - well, you are plugged in to the decision making nexus, I'm not, so I take your word for it. However, I'm sceptical that Brown and Darling (well.....Brown) would support moves that might end up worsening the repo numbers. (Having said that, they greatly surprised me by their CGT move which has invited BTL'ers to dump new stock early (April) at 18% rather than wait for taper relief.)

Most importantly though, doesn't the fact that MPs are all over this suggest that the numbers involved must be significant? And, don't you need to add those numbers onto the repo total to get a true picture of housing market distress? And, wouldn't that take the figure over the CML 30K forecast?

Posted by: Tom Gumbrell at February 11, 2008 02:23 PM


What is there to regulate about "sell to rent"?

It's just buying someone's house and then agreeing a rental deal, notionally packaged together. Which part would you regulate and on what grounds?

Posted by: HJHJ at February 11, 2008 05:29 PM

As I understand it, the cases that have exercised MPs have been the equivalent of plumbers charing pensioners 500 to change a tap washer. In other words, vulnerable people being paid a fraction of the market value of their properties. I have to say, however, that I don't have chapter and verse on this. It doesn't, either, fit the repossession argument, which you'd assume affected people with quite a high loan to value.

Posted by: David Smith at February 11, 2008 06:07 PM

"Mortgage lenders have joined forces with two of Britain's leading charities to call for sale-and-rent-back property firms to be regulated.

The Council of Mortgage Lenders, homeless charity Shelter and Citizens Advice have urged the Government's Economic Secretary Kitty Usher to bring sale-and-rent-back under the control of watchdog the Financial Services Authority.

In a letter to the minister, the trio have voiced fears over sale-and-rent-back firms, which purchase the homes of people in debt for below market value before leasing them back.

The companies often purchase properties as low as 60% below the market rate and typically offer no security of tenure beyond a six to 12-month tenancy.

Adam Sampson, chief executive of Shelter, said: 'The actions of some companies offering 'sale-and-lease back' schemes amounts to daylight robbery, leaving growing numbers of people financially ruined and homeless.

'The Government must urgently introduce regulation to stamp out this unscrupulous practice, which is cashing in on people's financial problems and deepening their misery.'

The CML, Shelter and Citizens Advice said vulnerable homeowners taking on sale-and-rent-back schemes were at risk of losing their home, saw equity disappear by selling at a discounted rate and often failed to receive an independent valuation.

The FSA has previously said that sale-and-rent-back did not fall under its remit, as it is regarded as a property transaction not a financial service.

However, the CML, Shelter and Citizens Advice have argued that the products are similar to regulated equity release home reversion schemes and Islamic mortgages, both of which involve the purchase of equity in a home and a long-running financial arrangement.

Michael Coogan, CML director general, said: 'Controls exist for action taken by mortgage lenders when customers are in arrears but there are no such safeguards for customers entering into sale-and-leaseback schemes.

'In a climate of rising repossession, consumers in financial difficulty need to be well informed and protected. The Government needs to consider urgently whether regulation of sale-and-leaseback schemes by the Financial Services Authority is appropriate because it would provide protection for potentially vulnerable consumers.'

The organisations also argued for the Office of Fair Trading to investigate the claims made by sale-and-rent-back firms in adverts.

Posted by: David Smith at February 11, 2008 07:54 PM