Finance counsels

U.K. mortgage repossessions rose at a slower pace in the second quarter as lower interest rates helped homeowners cope with their record debts.

Banks took possession of 11,400 properties, compared with 12,700 in the previous quarter, the Council of Mortgage Lenders said in an e-mailed statement today in London. The reading shows a 14 percent annual increase, compared with a 49 percent gain from a year earlier in the previous three months.

The Bank of England said this week that record low borrowing costs have eased debt burdens for households. Lloyds Banking Group Plc, the U.K. lender with 27 percent of the mortgage market, forecast “significant” cuts in its provisions for bad loans after it set aside 13.4 billion pounds ($22.2 billion) in the first half.

“With unemployment rising and the economy still weak, the outlook will remain challenging for the rest of this year and into 2010,” Jackie Bennett, head of policy at the CML, said in the statement. “Clearly, low interest rates are also helping borrowers who are committed to working to resolve their arrears.”

Other reports today showed consumers’ credit strains have eased. The Ministry of Justice said mortgage possession orders for England and Wales dropped 31 percent in the second quarter from a year earlier, and fell 1 percent from the first quarter.

The ministry also said debtors’ petitions for bankruptcy fell 4 percent in the second quarter from the first three months of the year to 16,139. Petitions are up 19 percent from a year earlier.

S&P Report

Delinquencies on U.K. buy-to-let loans fell for the first time in two years in the second quarter, according to a report by Standard & Poor’s on mortgage bonds released today payday advance.

Bank of England Governor Mervyn King said on Aug. 12 that while recent economic reports are “encouraging,” growth won’t resume on an annual basis until 2010 while banks restrict access to credit. The bank’s new quarterly forecasts suggest investors’ expectations for policy makers to raise the key interest rate from the current 0.5 percent in the next year may be overdone.

London-based Lloyds, which is 43 percent owned by the government, lost 3.1 billion pounds in the first half and said it won’t renew about 200 billion pounds of higher-risk loans as they come due over the next five years.

Bradford & Bingley Plc, the biggest lender to U.K. landlords before it was taken over by the government, said today the proportion of mortgages in arrears more than doubled in the first half as its net loss widened to 119.5 million pounds.

Record Debts

Consumers are struggling to pay their debts while job losses rise. They have amassed a record 1.5 trillion pounds of borrowings, central bank data show, and unemployment reached the highest level in 14 years in June.

The number of mortgages in arrears rose 47 percent in the second quarter from a year ago to 205,600, the CML said today. The reading is up from 203,900 in the first quarter.

The willingness of lenders to tolerate loan arrears has helped keep a lid on repossessions, the CML said.

“Today’s data shows that lenders are committed to helping borrowers manage their way through temporary payment problems and get their mortgage back on track over time, avoiding possession where possible,” Bennett said.

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