Banks Must Restructure Mortgages to stop repossessions

Even ‘aggressive’ rate cuts by the Monetary Policy Committee on Thursday will not be enough to stem a rising tide of mortgage repossessions, according to a new report published today by the Centre for Economic & Social Inclusion (‘Inclusion’)

With repossessions at their highest level since the housing market crash of 1991, and more than 30,000 people set to lose their homes on current trends before next April, the report argues for more radical measures to be taken to help hard pushed borrowers reduce mortgage payments and to improve court protection against repossession.

The report highlights the fact that the cost of mortgage repayments, relative to household income, has been steadily increasing since 2004.This has now been combined with a ‘de-coupling’ of mortgage rates from bank base rates as a result of the global financial crisis – causing the cost of borrowing to rise rapidly, a surge in arrears, and a rush to repossession by lenders who have also seen house prices fall dramatically.

Pointing out the more pro-active approaches now being taken by regulators in the U.S where ‘loan modification’ programmes are now being introduced to ensure no-one pays more than 34% of their income on mortgage repayments, Damon Gibbons, Head of Policy and Partnership at Inclusion, commented:

“Restoring mortgage affordability is critical to reducing the number of repossessions. There is a strong case for government to insist that banks introduce a mortgage restructuring scheme in the U.K in order to achieve this.The new UK Financial Investment Company should ensure it uses the £37 billion of taxpayer investment in Britain’s banks as a lever to achieve this.”

Inclusion’s report forms one of a series of being timed to coincide with ‘Responsible Credit 2008’, an international conference taking place in London on 13/14 November, which will bring together over 200 delegates from 26 countries to discuss the financial crisis and which will debate the future for regulation of the credit market.

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Notes to Editors