LONDON (Reuters) - Property repossessions are expected to jump almost a quarter this year, as the fall-out from the credit crunch takes hold, a leading economic consultancy says.
The number of mortgaged properties that will be repossessed in 2008 is set to rise to 33,400 -- up more than 23 percent on last year and a heady 300 percent increase on 2004.
The prediction, from the Centre for Economics and Business Research (CEBR), comes as borrowers increasingly feel the pinch from higher mortgage costs and a tightening of lending criteria.
At the same time, Britons have record personal unsecured debts and the cost of living is rising, stoked by soaring fuel and food prices.
CEBR said that until the problems in wholesale money markets are rectified, mortgage finance will be severely constrained and, even where available, rates offered to consumers will fail to reflect recent cuts in the base rate.
The Bank of England has cut the cost of borrowing three times since December last year, taking the official rate of interest to 5 percent from 5.75.
However, some lenders are failing to pass on cuts to consumers as they vie to shore up their financial position and improve margins.
Only just over a third of mortgage lenders have reduced their rates a fortnight after this month’s quarter-point base rate cut, according to data from price comparison service Moneyfacts.co.uk.
A total of 38 banks and building societies -- 38 percent of British lenders -- have announced they will cut their standard variable rates following the central bank’s move.
Most, including the largest four -- Halifax, Abbey, Lloyds TSB and Nationwide -- have passed on the full 0.25 percent cut, but fifth-largest Northern Rock and four others have taken the opportunity to boost margins by reducing their rates by less.
Nur Ata, a senior economist at the CEBR and one of the report’s authors, said: ”As the credit crunch bites, people will have to spend a greater proportion of their incomes on mortgages than they have done in the recent past.
”This is despite the fact that the Bank of England has cut its base rate recently.
“When affordability becomes a problem, the inevitable result is a rise in the number of repossessions.”
However, the CEBR said the outlook should be placed in its historical context: the number of repossessions would remain well below the 75,000 per annum seen in the early 1990s.
Unemployment should remain below 3.5 percent, the report predicted, unlike in the 1990s, when it reached 8-9 percent.
Read Reuters consumer finance blog here