One million households at risk of repossession

The Financial Services Authority (FSA) has warned that over one million households could face repossession in the coming 18 months.

The prospect of a slowing economy and tighter lending criteria could leave many homeowners in financial difficulties, particularly those coming to the end of a fixed-rate loan and facing a steep increase in mortgage payments.

In its Financial Risk Outlook, the FSA estimates that 1.04 million borrowers who took out mortgages between April 2005 and September 2007 are at risk.

The group comprises first-time buyers and remortgagers whose loans embody at least two the FSA’s three “high-risk” factors as follows: making a deposit of 10% or less; taking a mortgage for longer than 25 years; borrowing more than 3.5 times annual salary.

The regulator estimates that around 150,000 of these homeowners have all three high-risk factors.

The remaining 890,000 are identified as at risk of “financial difficulty”, which could result in repossession but equally could involve missing a monthly repayment or a credit card payment.

Home repossessions increased from 3,700 between January and June 2004 to 14,000 during the same period of 2007. The current record for repossession was set in 1991 when 75,540 homes were taken back by lenders.

The FSA’s warning if qualified by the following statement: “We are not saying this scenario will definitely happen but we want to raise awareness of the risks. With continuing uncertainty over the economy, it is more important than ever for people to take care of their finances.”

Mark Sands, director of personal insolvency at the accountants KPMG, comments: “It is a ‘drip by drip’ problem. An extra £5 on their mortgage, £10 on their council tax bill and so on is really putting the squeeze on people who are financially overstretched already.”

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