In a worrying development in the housing market, the number of people losing their homes after failing to meet their mortgage repayments has climbed sharply, says the UK’s financial watchdog.  

The number of repossessions in the second quarter of the year was 11,054, up 71% compared with a year earlier.  

The Financial Services Authority also said the number of people struggling to clear home loan arrears had risen.  

The FSA says the number of repossessions has been rising since September last year. The number of people who have fallen behind with their mortgage repayments for at least three months had also been rising steadily for more than a year, the watchdog added. Cases were up 16% on a year ago.  

Not all of these will lead to repossessions, and homeowners are urged to contact their lender as soon as they find themselves struggling to make repayments.  

This is the second time that the FSA has released figures of this kind, which are based on data from 300 regulated mortgage lenders and administrators. It started collating the figures at the start of 2007.  

The Council of Mortgage Lenders has estimated that 45,000 homes in the UK will be repossessed in 2008, up from 27,100 last year.  

Loans to borrowers with a chequered credit history represented 2.1% of new lending in April to July, compared with 3.4% a year earlier.  

In response to this news the Government has announced plans to ease the repossession crisis. This includes issuing new guidance to Judges regarding dealing with banks claiming houses over debt defaults and ensuring that they have exhausted all other options before attempting repossession.

Surprise surprise, the government plan for major banks to return mortgage lending to 2007 levels is just a broad aspiration, according to the Council of Mortgage Lenders (CML).

The government wants RBS and Lloyds TSB to boost lending to house buyers and small businesses as a condition of its injection of £37bn into the banks.  

Earlier, the CML said the plan seemed not to be ‘prudent or desirable’ and called for clarification. The CML now welcomes the proposal, but confusion still surrounds its terms.  

Some £20bn of taxpayers’ cash is likely to be pumped into RBS, with a further £17bn to be put into HBOS and Lloyds TSB. This would give the government a significant stake in the banks, and the government has attached some conditions to this investment.  

These include ‘maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels’.  

The CML said it wanted clarification of what exactly was meant by this. Initially it said it doubted whether, given the current market, it would be prudent or desirable to return to 2007 lending volumes.  

But later, after discussions with the Treasury, it welcomed the aspirational view of a market where ‘credit-worthy borrowers’ have access to a good spread of mortgage products as they did a year ago.  

While the Brown government was suggesting lending conditions to banks in a bid to stimulate the mortgage market, nationalised Northern Rock announced it was not passing all of last week’s cut in interest rates to mortgage holders.  

The lender said its standard variable rate (SVR) would be cut by 0.15 of a percentage point to 7.34% from 1 November for existing borrowers.  

The Bank of England’s Monetary Policy Committee cut the Bank rate by half a percentage point to 4.5% in a surprise move last Wednesday.  

Ten lenders including Halifax, Lloyds TSB, the Woolwich, First Direct, Royal Bank of
Scotland and NatWest all said they were reducing their SVR by half a percentage point shortly after the cut.