Secured Loans: Repossessions at five year low!

The number of actual Second Charge Repossessions taken by FLA members fell by 45% in the first three months of 2015 to only 60 as reported by the Finance and Lease Association (FLA) whose members include banks, credit card providers, store card providers, second-charge mortgage lenders, motor finance providers, personal loan and instalment credit providers.

Repossessions of second charge mortgages (secured loans) have fallen to a very small number in 2015 as have repossessions of first charge mortgages which stood at only 0.03% or 3,100 in the same period.

Commenting on the figures, Fiona Hoyle, Head of Consumer Credit at the FLA, said: “Second charge repossessions are continuing to fall as second charge lenders continue to do all they can to help customers in financial difficulty.”

Why are repossessions so low?

Low interest rates and an improving economy are obviously important but there is something else going on.

The industry regulator (Financial Conduct Authority) is encouraging lenders to practise a great deal of forbearance when borrowers encounter repayment difficulties. Repossession is also clearly understood to be a last resort in a situation where there may be no-one to blame. Borrowers rarely come out of the process happy, that is with a good price achieved for their property. The only winners are the solicitors and estate agents or auctioneers who have to manage carefully a tricky prescribed process.

In a repossession, first mortgage lenders will probably get all their money back but the high legal/selling costs often mean that the second charge lender will suffer a loss.

So in the current regulatory climate, borrowers of secured loans are far more likely to keep their homes should they encounter repayment difficulties – especially in comparison with the period up to 2009. But it is a win-win situation for borrowers and secured loan lenders, who may avoid a loss.

To summarise, borrowers of secured loans who fall into arrears can therefore be confident that they will be dealt with fairly by lenders and the county courts. Providing borrowers maintain payments on their first mortgages they are unlikely to lose their homes, even if they experience repayment difficulties with their secured/second charge loans.