experts are talking openly about repossession (February 05, 2008)

• Sally Hamilton
• The Observer,
• Sunday February 3 2008

Last week the Financial Services Authority issued its starkest warning yet that the housing market is in dire straits. More than a million homeowners were warned that they could be in serious financial difficulty and might lose their homes as inflation rises and the economy slows. The FSA says those homeowners most likely to struggle in the downturn will have mortgages that:

· have a term of more than 25 years;

· are worth more than 90 per cent of the home's value; and

· required borrowing 3.5 times or more than their income.

The warning follows a rash of announcements of small falls in the property price indices run by the Halifax, Nationwide and Right Move. On Thursday, Nationwide announced a month-on-month fall of 0.1 per cent in the average house price: tiny, but the third such fall in a row. This follows a 0.8 per cent fall reported by Rightmove in January and 0.8 per cent over the last quarter of 2007 by the Halifax.

We may be in for a long period of gradually declining prices. Property cycles run for a long time: it was 1996 and 1997 when house prices entered a new upward cycle, after five years of falling .

The news on repossessions is already worrying. Council of Mortgage Lenders figures, to be published on Friday, are likely to show that about 30,000 homes were repossessed in 2007 compared with 22,700 in 2006 and 8,000 in 2004. However, the organisation points out that there are more than 11.7 million mortgage borrowers now, compared with 9.8 million in the repossession dog days of 1991, when more than 75,000 owners lost their homes.

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