Will There Be More Repossessions At Auction In 2023?

Typically in tricky times for the economy the numbers of properties being repossessed by lenders increases. Repossessions sometimes end up in property auctions – and these properties can make attractive propositions for buyers.

In this article, we will consider whether more repossessed properties are likely to be listed at auctions this year.

The repossession timeframe

It should be borne in mind that repossession is a lengthy process. So any spike in repossessed lots could take some time to materialise. Lenders are unlikely to even threaten repossession until a mortgage account has been in default for several months and the borrower has not responded to an invitation to resolve things.

The process of obtaining a repossession order can be a long one: Latest data from the Ministry of Justice says that in autumn 2022 the average time from a repossession claim being made to actual repossession was 60.1 weeks.

Factors leading to repossession

So what factors can lead to repossession? Today it is generally always a last resort. It only becomes a possibility when a borrower is in default and there is no prospect of settling the arrears, or an arrangement to do so has failed.

Mortgage unaffordability, especially where buyers have bought at the top of the market, can be a factor. Inflation and rising living costs which are impacting the market right now can compound this.

Negative equity can be a factor. Periods of high property price rises followed by a correction can lead to borrowers entering negative equity, where the amount they owe exceeds the value of their property. Again some pundits suggest negative equity could become more prevalent in the market this year.

In past recessions, unemployment has been a factor in many repossessions. This does not seem to be a risk in the wider economy at the moment however.

One factor that is present (and has not been in previous recessions) is the issue of the popularity of fixed rate mortgages in recent times. Ostensibly these are about enhancing affordability. However, borrowers whose deals come to an end this year could find that their mortgage is now much more expensive or perhaps that they are unable to remortgage.

Repossession and landlords

Something should perhaps be said about landlords. Potentially there could be more repossessions from this source. Landlords have faced increasing headwinds over the last few years with factors such as Section 24, increased regulatory burdens and now higher interest rates. Fast rising rents could offer a lifeline to many landlords for the time being however.

UK repossession trends

It might be useful to look at UK repossession trends: 1991 was a record year for repossessions when they reached 71,500 (CML/Gov.uk figures). Numbers then steadily declined before reaching a new peak (in the then-financial crisis) of 40,000 in 2008 and 48,900 in 2009.

The trend has been very firmly downwards since. In the last few years pre-Covid they steadied at what seems to be a ‘new normal’ of only around 5,000 annually. Statistics from 2020 and 2021 are perhaps fairly meaningless due to the pandemic. However, the data that is available from 2022 so far suggests that there will be a slight increase in annual pre-Covid numbers.

Reasons for these low numbers may include low interest rates as well as the concept of forbearance. Since the financial crisis lenders have been expected to work with borrowers to find a solution other than repossession. This was generally not the case in the 1990s or even in 2008-2009.

Now let us take in some thoughts from auctioneers on whether there will be more repossessions this year:

Ian Kitson, Director of Property Auctions & Valuations at Cheffins says: “With regards the possible repossession levels for 2023 I like most will fall in the ‘don’t know’ category. It is of course true that the cost of living crisis is being felt across the country, and unfortunately there are likely to be repossessions, either as a result of higher living prices which will present challenges for many in affording their mortgage payments, or because their current fixed rate deals are ending and they cannot afford the new higher rate payments.

“That said, mortgage rates of even five or six percent are still considered to be on the lower side when compared to very long term historic averages, so many others will be able to absorb the higher costs being felt. Similarly, there are a lot of people who still have the effects of the pandemic fresh in their minds, and are far more willing to forgo other things in life, such as new cars, holidays and so on, as their home has risen to the top of their priorities like never before.

“Only time will tell how many households will fall into each of these two scenarios.”

“With regards the effects on the wider market, I think that is also unclear. There is currently a general shortage of stock coming to the market, so any potential increase in supply from repossessions is likely to be absorbed and will simply meet the current excess of demand, with little adjustment in price.

“However, if there is a longer term flood of stock to the market, then prices may adjust downwards accordingly, as demand is exceeded by supply. Currently, it appears that there are still plenty of buyers waiting to acquire good stock, so well-priced lots have done exceptionally well, and there is no reason to think that that won’t continue unless something dramatic happens.”

Guy Charrison, Director at Network Auctions comments: “The number of repossessions over the last few years have been low. The increased interest rates and difficulty in refinancing are likely to follow through to seeing some repossessions. This said we usually see repossessions linked with high levels of unemployment, but the current high levels of employment make us think that we will not see high levels of repossessions in 2023.

“It is likely the next general election will be next year and the government will want to avoid substantially increased levels of repossessions. It is worth recalling that when the government bailed out the banks back in 2008/9 they actively suppressed foreclosure and encouraged lenders to introduce payment holidays etc.”

He summarises: “We expect lenders to continue to innovate going forward to create affordability. Lifetime mortgages are likely to be introduced which will probably make possession an even more remote option for lenders.”