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Young families 'most at risk of repossession'

Property specialist movewithus has identified young families as the most at risk to repossession in the current market. Robin King, movewithus founding director, is urging the Government to put more pressure on Lenders to take decisive action to combat this prospect, which he argues will have a detrimental effect on families and the economy in the short and long term.

King said: “Young couples who purchased their homes within the last four years are suffering from increasing interest rates and a reduction in the equity in their properties caused by falling prices. Many will have taken out 90 – 125% mortgages, making them less likely to be able to re-mortgage at a competitive rate.”

Figures show that the cost of a 100% two year interest only fixed-rate mortgage with Northern Rock for a £180,000* property would have cost 5.5% two years ago, equating to £825 per month. This mortgage will be reverting to the standard variable rate of 7.49% this year, meaning a £300 increase in payments each month.

King commented: “The options to re-mortgage on a fixed rate are all more expensive and house values have fallen, effectively locking borrowers into variable rates which, given the current trend set by UK banks to charge rates that seemingly bear no relevance to the Base rate set by the Bank of England, could be catastrophic.”

movewithus is calling for immediate action by Government and financial institutions to alleviate this pressure. The company has been piloting a Prepossession service with a handful of Lenders whereby borrowers who are struggling with mortgage payments have their properties accurately valued and proactively marketed to sell quickly, avoiding an unwanted repossession for both the customer and the lender. movewithus is proposing a grander Government backed Prepossession scheme; instead of repossessing, a more affordable commercial rental rate would be agreed between the lender and borrower.

Robin King said, “The reality is that young couples, who were unlikely to have had a significant deposit two years ago, would have been more likely to take out high percentage mortgages. If they have had children since moving, they will be suffering the double whammy of a decreased family income or expenditure of childcare, along with the other associated costs of a family. This makes a potential 36% increase in mortgage payments even tougher on family finances and opens up the very real prospect of repossession.”

King added, “It’s time for Lenders to accept responsibility for their mistakes with prolific lending. Accepting a decreased payment in the short term is more prudent for Lenders, considering the costs associated with repossessing and reselling properties in a falling market. By charging a realistic market rent, Lenders can ride out the downturn and see their asset increase in value while still receiving a regular income. The Government needs to take responsibility too; young families who have recently been repossessed are much more likely to take up social housing.

“It’s important that the Government also recognise the importance of avoiding repossession in a social sense. The upheaval and stress associated with repossessions detrimentally affects family life - stable families are much more likely to contribute positively to society and the economy.”

Source

http://www.movewithus.co.uk/mwu-news/00,news,54643,468,00.htm (launches a new window)

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