Repos up 15% – but is forbearance hiding the real picture?

Repossessions went up 15% in the first quarter of this year.

Compared with the final quarter of last year, when 7,900 properties were possessed, 9,100 properties were possessed in the first three months of 2011.

However, the figure was 10% lower than the same period a year ago, and equal to the average quarterly number of repossessions throughout 2010.

The total number of mortgages in arrears also fell – but only very slightly. At the end of March, the number of mortgages with arrears equivalent to 2.5% or more of the outstanding balance showed an improvement to 166,900 (1.47% of all loans), compared with 170,000 (1.5% of all loans) at the end of December 2010.

The Council of Mortgage Lenders is currently forecasting 40,000 repossessions and 180,000 arrears cases of 2.5% or more by the end of this year.

However, the CML has acknowledged concerns expressed this week by the Financial Services Authority which says that lenders are hiding the true figures by their “excessive” forbearance of borrowers in arrears.

CML director general Michael Coogan admitted: “Too much forbearance may be as bad as too little.”

This week, the FSA accused lenders of hiding the true state of their mortgage books by using techniques such as extending the term of the mortgage, transferring it to interest-only, or ‘flexing’ the terms of the deal.

The FSA said that lenders were particularly likely to use excessive forebearance “in an environment of falling or stagnating housing collateral prices”.

A further warning also came from Michael Ossei, personal finance expert at uSwitch.com, who said: “This drop in arrears is not likely to last much longer as we are facing a perfect storm.”

He said that when stagnant salaries and rising costs, including energy, hit home, many households would be in “dire straits”.