Reckless lending led to repossessions says Shelter

Nia Williams

March 15, 2011

Analysis of FSA data reveals over 17,000 repossessions would have been prevented if mortgage regulation rules, proposed by the Financial Services Authority as part of the Mortgage Market Review, had been enforced over the last five years.

Under the rules vulnerable homeowners would not have been lent huge sums of money they were never going to be able to pay back, which in turn would have stopped them from falling into arrears in trying to keep up with sky-high monthly mortgage payments.

The analysis also shows borrowers wouldn’t have had to pay out over £20 million in arrears fees demanded by banks when they fell behind with their repayments.

On the day the FSA publish their latest repossession figures, the charity is calling on Government to support the FSA’s proposals which would introduce simple, common sense affordability and income tests to ensure borrowers can manage their repayments. The rules will not stop most people getting a mortgage but will ensure the size of the mortgage they get is affordable and they can pay it back.

Campbell Robb, chief executive of Shelter said: “This research shows just how much the mortgage market has failed to protect people, leading to thousands needlessly going through the nightmare of repossession.

“Every day our advice services help struggling homeowners pick up the pieces after being irresponsibly lent money they had no hope of paying back in the first place. Many people try desperately to manage the hefty mortgages repayments until one small thing, like an illness or a pay cut, pushes them into a spiral of debt and repossession.

“Reckless lending over the last few years, which saw some lenders giving out loans of more than 100% of the value of the property and up to seven times people’s salaries, helped to fuel the rise in arrears and repossessions, not to mention an unsustainable house price bubble.

“And yet the banking industry still refuses to support the FSA’s proposals and make sure this reckless behaviour is never allowed to happen again.”

Mr Robb continued: “With tough times ahead it is vital the Government and lenders make a genuine commitment to sensible lending which will prevent any more needless repossessions in the future.”

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