HML. Homeloan Management Ltd

The following two statements may not immediately ring true, but please bear with me.

 

1.    Not all the news over the past week has been bad

2.    There is good news in repossessions

 

I’m referring to the CML’s most recent statistics, which show that repossessions are down 7 per cent year-on-year, with 18,100 repossessions having taken place in the first half, as opposed to 19,500 during the same period last year.

 

If this trend continues for the rest of this year, then the total number of repossessions during 2011 will be 33,760, which is remarkably close to HML’s forecast of 33,257 made at the start of the year – proof of the accuracy of the predictive modeling tools used in our Business Intelligence team.

 

However, despite this good news the CML has not downgraded its original forecast, which remains at 40,000 for the full year. Why?

 

The easy answer may be that the CML is hedging its bets; when it comes to repossessions it’s better for the final figures to come in below forecast. But I don’t think that’s the reason the CML are holding firm at 40,000.

 

I suspect the real reason is because they believe, like HML, that there are factors which may cause repossessions to rise during the second half of 2011 and into 2012.

 

The most obvious factor is the general state of the economy. As recent government figures have shown, growth in the economy is slow and inflation is likely to rise above 5 per cent which will put pressure on the pound in consumers’ pockets. This sustained period of pressure means that, regrettably, some families will struggle financially to keep their heads above water.

 

Also, borrowers who have to date benefited from lenders’ generous forbearance policies, may find them to be unable to extend the offering in the future following the FSA’s recent review of forbearance practices.

 

And, although the current forecasts are for interest rates to remain low in the immediate future, when an increase does happen (and it will do eventually), the resultant rise in mortgage payments will stretch some finances too far.

 

The CML has therefore decided to hang-on in there with a forecast of 40,000 repossessions this year. At HML we agree that repossessions may well rise during the second half and into 2012, but we’re not quite so pessimistic and anticipate the final figure will be in the 34,000 - 36,000 range.

 

Unfortunately, one swallow doesn't make a summer. The repossessions statistics are likely to get worse before they get better.