Weekly Market Comment

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20 February 2009

Repossessions Up

Figures released by the Council of Mortgage Lenders have shown that home repossessions have risen by 54% in 2008 when compared to 2007. While this is a substantial rise year on year it has come in below previous CML forecasts and is still far lower than the level experienced in the early 1990s.

The forecast for the coming year predicts that this trend will increase to 75,000 repossessions during 2009, far closer to the early 1990s level. It should be noted that there are approximately 2m more mortgages now, at approximately 12m, than in the early 1990s.

The importance of repossession rates for the housing market is clear, especially in a period where interest rates are low. If the cost of borrowing increases or the economic situation deteriorates further the rate of repossession is likely to increase. This can have the effect of accelerating price retreat as more distressed sellers come to the market. It should also be noted that the number of actual repossession is only the exposed tip of the forced seller iceberg - there has also been a significant increase in 3 monthly arrears. It is also true that the government is going to take a more involved role in preventing repossessions with a number of schemes either launched or due to launch shortly, such as the Home Owner Mortgage Support Scheme.

Key Points Announced or Expected  in Home Owner Mortgage Support Scheme

- Payment holidays for 'income shocks' on mortgages up to £400,000
- Roll up of up to 70% of interest payments
- Government to guarentee 80% of deferred payments if borrowers fail to cover payments

These may reduce the number of repossession compared to the 1990s cycle but there may still be a large proportion of the market that becomes forced sellers. 

Any further significant worsening of the employment market, especially in Edinburgh with its dependence on the financial sector, may drive a higher number of distressed sales, even if ultimately the proportion of repossessions remain below 1990s levels. 

Other Mortgage Lending News

In a summary of other mortgage lending news the CML have also announced a decline in total year on year (YoY) lending by 52%, down 8% from December's figures. Falling further in YoY terms was the buy to let (BTL) sector which in the final quarter of 2008 was down 63% whilst arrears on BTL mortgages increased by 2.32% over the final 3 months of the year.

In the Bank of England Credit Condition Survey, demand for mortgage lending remained fairly stable but as the graph below shows has dropped over the course of 2008.

Mortgage lending, whilst already on the main stage, is set to become one of the central issues of 2009 as individuals, institutions, the Government and Banks all try to reconcile opposing forces to find a way to restore sustainable credit to the market.

In his final speech before stepping down Sir John Gieve, BoE Deputy Governor for Financial Stability, suggested a cap on mortgage lending stating,

 "If problems are concentrated within the property market then caps on loan-to-income and loan-to-value ratios might be effective ... in theory a ceiling on these ratios could have provided an effective brake on the excesses of the last boom."

St James and the Trams

The state and perceived health of Edinburgh city centre seems to be enjoying a mixed experience at the moment as, while the redevelopment of the much reviled St James Centre has been given a green light, it has recently been announced that the Tram works have been delayed due to contractual issues; this news comes hot on the heels of concerns being voiced, and quashed, regarding the health of the Caltongate project.

The continuation of high profile developments such as the St James Quarter and Caltongate are important for the ongoing perception of Edinburgh as a strong and robust business centre. 

Rightmove Launch Consumer Confidence Survey

With 28,000 respondents, Rightmove have released the results of their first consumer confidence survey, key extracts below

• Nearly half (46%) of respondents expect to buy a home to live in during 2009
• 10% are planning to buy an investment property.
• 29% hope to sell a property in the next 12 months.
• 16% of consumers expect to rent a property in 2009
• 15% hope to let out their property
• Over 11% expect to extend and improve their home.

For the full results click here

These results reflect the wider experience of many agents and indices reporting a growing level of interest if not transactions. With mounting sentiment and acknowledgement that a good time to buy could be coming soon we shall all have to watch for the tipping point that produces activity. 

Contact Us

If you have any questions, would like any further information regarding the above content or would like to discuss how the Rettie & Co. Consultancy & Research Team can help your business, please do not hesitate to contact:

Andrew Meehan
Researcher

t: 0131 624 9051
e: andrew@rettie.co.uk

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