A Million Families Risk Repossession

One million families are at risk of losing their home to repossession in the next year and a half, according to the Financial Services Authority (FSA).

The City financial watchdog says in its Financial Risk Outlook, that increases in mortgage repayments on top of people’s other debts will push many over the financial brink.

There are still hundreds of thousands of mortgage holders still to come off cheap fixed rates and they will find that their mortgage repayments will be much higher than they are now. The FSA is concerned that some will find that they cannot switch to an alternative cheap deal.

As lenders have tightened their lending criteria following the effects of the credit crunch, many of those coming off fixed rate deals may now be seen as a bad risk and will have to revert to the lender’s standard variable rate – much higher than cheap deals.

The FSA says that nearly one in five of those who took out mortgages between April 2005 and September 2007 could risk repossession.

The FSA has identified three key factors which could put mortgage holders at risk: having a mortgage of 90% LTV or higher; having a mortgage for a term over 25 years; borrowing over 3.5 times annual salary. The FSA estimates that there are around 150,000 who have all three of these factors who are most at risk.

That figure is much more than the 75,540 repossessions of the worst year to date, 1991. There are also another 890,000 home owners who are at risk of ‘financial difficulty’, including missing a mortgage or credit card payment.

Head of financial strategy and risk at the FSA, Lyndon Nelson, said that apart from mortgages, other debts such as personal loans, credit cards and overdrafts could tip people over the edge.

Home repossessions have already rocketed to 14,000 between January and June 2007 from just 3,700 during the same period in 2004.

A spokesman at the FSA said: “We are not saying this scenario will definitely happen but we want to raise awareness of the risks. With continuing uncertainty over the economy, it is more important than ever for people to take care of their finances. Anyone with debts, including mortgages, should take stock, review their budget and make sure that it is affordable if there is change in circumstances, such as a job loss or a rise in interest rates.