Enlarge imageBy Matt Falloon
LONDON (Reuters) - The number of Britons losing their homes because of bad debt hit an eight-year high in the first half of 2007 as rising interest rates push more and more borrowers over the edge despite double-digit house price growth.
But economists said the situation in Britain was unlikely to add significantly to U.S. housing market problems which have rattled global financial markets over fears about bad debts and the onset of a swift and severe slowdown.
The Council of Mortgage Lenders said home repossessions soared by almost a third in the first half of this year compared to a year ago to 14,000 -- the highest since 1999 and roughly 77 homes a day.
Official figures also showed personal insolvencies at near record levels, with the equivalent of nearly 12 people an hour succumbing to bad debt in the three months to the end of June.
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"The numbers make unpleasant reading and it is going to get worse," said Alan Clarke, an economist at BNP Paribas.
The Bank of England has hiked borrowing costs five times to 5.75 percent since last August and is expected to push interest rates up to 6 percent by the end of the year in order to bring above-target inflation back under control.
Nor will Britons be able to rely on fast-rising house prices.
"With the housing market slowing into 2008 and interest rates expected to hit 6 percent, homeowners slipping behind with their repayments may be left stranded, unable to sell their way out of trouble," said David Stubbs, senior economist at the Royal Institute of Chartered Surveyors.
While Britain’s robust housing market is expected to cool and repossessions to rise, few are predicting that conditions will deteriorate to the levels seen in the early 1990s -- the last time there was a crash.
In 1991, homes were being repossessed at almost three times the rate as they are now.
Nonetheless, concern is rising because two million homeowners over the next 18 months will be coming out of fixed-rate mortgage agreements to find themselves having to renegotiate terms with interest rates 125 basis points higher.
"The pressure on many households is set to increase significantly, given that the cumulative 125 basis points rise in interest rates enacted so far by the Bank of England since August 2006 is yet to fully feed through to impact on borrowers," said Howard Archer, an economist at Global Insight.
POSITIVE SIGNS
But there were some bright spots in the latest data. The growth of personal insolvencies appears to have peaked for now.
Following the record high numbers of insolvencies hit at the end of last year, the number of people succumbing to bad debt has fallen for two consecutive quarters -- down about 8.1 percent in the second quarter from the first to 26,956.
The Ministry of Justice said mortgage possession court orders in England and Wales in the second quarter of 2007 were 3 percent lower on the year, numbering 21,514, and nearly half of these were suspended.
Economists also point out mortgage delinquencies in the United States -- where subprime mortgage fears have sent shockwaves through global markets -- are outstripping those in Britain.
"Further still, while U.S. homeowners were facing the crunch from falling house price inflation, UK homeowners are still being cushioned by double digit gains in house prices," BNP Paribas’ Clarke said.
(Additional reporting by Christina Fincher, Sumeet Desai, Fiona Shaikh)
