House repossessions rising slowly

May 14th, 2011

An expected but certainly troubling piece of news emerged this week as it was revealed that 9,100 homes were repossessed in the UK in the first three months of 2011, up 15% on the previous quarter.

The figure was 10% lower than the same period the previous year and in line with the quarterly average of 2010, the Council of Mortgage Lenders (CML) said.

The number of householders getting behind on mortgage payments has fallen slightly since December.

The CML has warned that households would be financially stretched for some time. The group has predicted that a total of 40,000 people will lose their homes this year, up from 36,300 in 2010.

Repossessions were at a relatively low level at the end of 2010, but the latest quarterly figures show the first three-month on three-month rise since the third quarter of 2009. But while more homes were repossessed, arrears levels fell during the same period.

Looking ahead, the financial position of many households is likely to be stretched for some time.

At the end of March, the number of mortgages with arrears equivalent to 2.5% or more of the outstanding balance stood at 166,900, which was 1.47% of all loans. This was less than the 170,000, or 1.5%, of loans in arrears at the end of December 2010, and 11% lower than the 187,300 home loans in arrears, 1.65% of loans, a year earlier.

Lenders are giving householders the chance to get back on track with mortgage payments, rather than repossessing homes quickly. However, a squeeze on incomes could make things more difficult for homeowners.

The regulator of the mortgage market has alerted lenders to the fact that being too generous with borrowers getting behind on payments could cause problems, as could repossessing homes quickly without giving householders the chance to overcome difficulties.

Commentators have this week been debating if and when the Bank rate might rise from its record low of 0.5%. This would have an impact on the costs of mortgages. However, a rate rise of a quarter percentage point, taking the Bank rate to 0.75%, would not push a host of homebuyers into arrears.

Despite this, falling house prices and inactivity in the market could cause problems for some families facing financial difficulties. The continued decline of house prices since March 2010 means that there is an ever-increasing stock of houses appearing on a stagnant housing market.

For individuals in debt and with arrears, selling their property quickly is far from certain.

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Personal insolvencies down in the first quarter of 2011

May 10th, 2011

This week it was announced that fewer people were declared insolvent in England and Wales in the first three months of the year than previously. There were 30,162 personal insolvencies in the first quarter, down 1.7% on the previous three months and the fourth consecutive quarterly fall.

The Insolvency Service figures show the number was 15.5% down on the same period a year earlier, although there was a rise in the number of businesses going bust. Experts predict the number of personal insolvencies to rise later in the year.

A record number of people were declared insolvent in 2010, but the numbers were falling as the year went on. Some people find that Christmas spending adds to debt problems, with credit card bills landing at the start of the year, but the trend of falling personal insolvencies continued at the start of 2011.

A variety of options are available for those facing acute financial difficulties. There has been a sharp fall in the number of people choosing the traditional route of bankruptcy. There were 12,539 bankruptcies in the first three months of the year, down 31.3% on the same period a year earlier, although the total was up 4% from 12,028 in the last quarter of 2010.

The number of people choosing an Individual Voluntary Arrangement (IVA), which allows an official deal to be struck between the debtor and creditors, also fell compared with a year ago. There were 10,835 IVAs declared, which was 8% lower than the first quarter of 2010. However, the new style of insolvency for those with relatively low debts – known as a Debt Relief Order – grew in number to 6,788. This was 20.3% higher than the same quarter of last year and was up 10% on the previous three months.

Separate figures released in April showed that personal insolvencies also fell in Scotland. The Accountant in Bankruptcy (AiB) figures showed 4,262 people were declared insolvent between January and March – a drop of 7% on the previous three months.

However, accountants are predicting a rise in personal insolvencies across the UK later in the year, with job losses expected to increase and austerity measures continuing to take effect.

The current insolvency figures must not mask the fact that the crippling effects of personal debt are still very much being felt by households. The recent decision by the Bank of England to keep the Bank rate at 0.5% would have brought a sigh of relief to debt-riddled households. This is helping thousands of cash-strapped homeowners avoid personal insolvency.

However, the economy as a whole still remains fragile with households feeling the squeeze from high inflation, tax rises and the prospect of job losses, we cannot count on this positive trend continuing as the year goes on.

There was more concerning news for businesses in England and Wales. There were 1,314 receiverships, administrations or company voluntary arrangements in the first three months of the year. All three showed a rise compared with the previous three months, although the total was down 2.2% on the same period a year ago.

There were 4,121 firms that were liquidated – the end point of the insolvency process – in the first quarter of 2011. This was 3.7% higher than the previous quarter and up 2.1% on the same period a year ago.

In Scotland, there were 279 company liquidations in the first three months of 2011, up from 245 during the previous three months and 275 in the first quarter of 2010. In Northern Ireland, there were 94 company liquidations in the first three months of the 2011, up from 85 during the previous three months, but down from 102 in the first quarter of 2010.

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More companies forced to compensate customers for poor service

May 2nd, 2011

This week figures have shown that, in addition to the high street banks, a growing number of businesses are being compelled to pay compensation after treating their frustrated customers poorly.

Some 20,019 pay-outs for “distress and inconvenience” were ordered by the Financial Ombudsman in 2010-11, up 1,508 on the previous year. Most awards were for less than £300, with amounts rarely exceeding £1,000.

Cases included persistent administrative errors and failure to provide services as promised.
For example, one motorist was given compensation by her insurer after waiting for a week for a hire car to be arranged while her own car was being repaired.

In another case, a bank customer visited his branch to close an account. He then was forced to make a series of follow-up calls and fill in the forms again in a return trip to the branch before his account was finally closed. He was awarded less than £300.

In a more serious case, a family of four had to share a room in a relative’s house after their own home was flooded when a pipe burst.

Under the terms of their home insurance, they should have been found alternative accommodation. The ombudsman ordered the insurer to pay compensation of between £300 and £999 to the family.

Compensation payments of more than £1,000 are only paid in exceptional cases. These included a case in which a man was injured after falling down the stairs while on holiday in Thailand. He needed to be repatriated to the UK for specialist treatment. However, his travel insurance provider argued he had been drinking so the policy was invalid. His wife explained that he did not drink alcohol and witnesses said he had been sleep-walking.

It took the insurer two weeks before it realised the mistake, during which time the injured man’s condition had worsened.

Generally, these cases did not lead to any financial loss, but compensation was considered appropriate by the ombudsman. Cases arrive with the independent ombudsman if a business and its customer fail to agree on a dispute.

Compensation can be awarded by the ombudsman, even if the customer has not specifically asked for it in addition to settling the dispute.

Slight inconvenience to consumers, such as a busy telephone line or an incorrectly spelt name, would not result in compensation being awarded. However, repeated or aggravated mistakes were more likely to result in pay-outs.

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