Friday, 21 January 2011

The reed that bends with the wind

How many will suffer the nightmare of mortgage arrears this year?
Mortgage lenders are saying today that they don't expect a serious increase in borrowers falling behind.
The latest forecast from the Council of Mortgage Lenders (CML) predicts that 180,000 people will go into arrears during 2011, which would be a rise of 5,000 compared with last year.
That would be a modest tick upwards, given the pressure on household budgets from jumps in the cost of food, petrol, heating and VAT, plus the danger of job losses.
The figure covers borrowers with arrears of 2.5% or more of their outstanding mortgage loans. Compare that with the peak back in 1992 of 352,000 borrowers who were more than 6 months behind on their payments and you can see that the arrears problem is surprisingly small, under the circumstances.
But how long can this last? 2011 is the crunch year, after all, when we start paying for the financial crisis through job cuts, budget cuts and, eventually, interest rate rises.
The reed has been bending with the financial wind so far, but could it be about to break?
The CML bases its confidence on the fact that that interest rate rises this year are likely to be modest, so the impact on families struggling with their mortgages may be minimal.
Also, it points to some interesting research it commissioned last year which depicts British households as far more resilient in the face of financial stress than many would assume.
Consumers are flexible in their budgeting, according to the CML, and they tend to prioritise mortgage payments over other bills. And, of course, they cut back on unnecessary shopping first.
Of the 5% of borrowers who feel under the greatest financial pressure, only half have actually missed a mortgage payment, and many of those have managed to negotiate new terms with their lenders.
But things have moved on, even since lenders penned their latest forecast in December. Prices have moved higher. The financial stress has increased and anxiety has grown.
It wouldn't be hard to make a case that households could find themselves in a much more precarious position during the year than the CML has been saying.
Job losses and reduced incomes are the main fears that families face. Then there is the possibility at least that the Bank of England will move more quickly to raise its base rate.
The housing charity, Shelter, is much more concerned about the outlook this year. It talks about thousands more struggling households being pushed over the edge.
Falling into arrears is a harrowing experience for a family. You come under pressure not just from the mortgage company, but from other lenders as well.
Then there is the danger of repossession.
Let's hope the CML is right.

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