Lloyds moratorium fuels repo fall

Figures out this morning from the Council of Mortgage Lenders showed a fall in the first quarter of this year in the number and the proportion of mortgages in arrears or ending in repossession.

The total proportion of all mortgages with arrears equivalent to more than 2.5% of the mortgage balance was 1.03% at the end of the first quarter. This was down from 1.05% in the fourth quarter of 2014, and well down on the 1.24% recorded at the same time last year.

In a statement released with the figures the CML said: "For technical reasons relating to lenders' processes, the number of repossessions in the first quarter may be showing an overstated reduction.

“Subsequent quarters may therefore show a compensating effect, but the overall underlying trend is one of continuing gentle downward movement.”

Lloyds Banking Group declined to confirm how many repossessions it had undertaken this year but sources say the bank has failed to take possession of a single property in Q1, warning that this could see problems stored up for later this year.

A Lloyds Banking Group spokeswoman said: “In 2014 a Northern Ireland court judgment was made in relation to how the bank calculates mortgage arrears.

“Following this, the group believed it was right to consider the issues raised in the judgment and that it was appropriate to temporarily suspend repossession proceedings across our mortgage brands.

“The group has now recommenced repossession activity on a phased basis. For those people affected by the suspension, we will continue, as in the normal course of business, to review each account and work with our customers on a case by case basis – repossession is always a last resort.”

She added that the bank always implements a “temporary moratorium” on repossessions for a two week period over Christmas and that this year’s suspension ended at the end of February.

Lloyds Banking Group said in February that it planned to begin repossessing properties “imminently” after suspending all proceedings in the UK following a High Court ruling in Northern Ireland that condemned the bank’s “unconscionable” treatment of borrowers who fell into arrears.

On 20 August last year the Housing Rights Service brought a case against Bank of Scotland, part of Lloyds Banking Group, in Northern Ireland claiming the lender had “capitalised” on borrowers’ arrears – adding their arrears to the principal loan and overcharging interest on the total.

This resulted in the bank starting possession proceedings against some borrowers who had been unfairly charged more than they owed.

During his judgement in August last year High Court Judge Master Ellison said Bank of Scotland's “reliance on extinguished arrears may fairly be described as double–billing” and was clear that bank had breached Financial Conduct Authority requirements, applicable across the UK.

He added: “Unilateral consolidation with double billing creates very real problems for borrowers, their advisers and the court. To the extent at least of the double billing, it is unconscionable.”

Following the judgement the bank suspended all possession proceedings in Northern Ireland and in December last year it confirmed a temporary suspension of possession proceedings in the rest of the UK.

A spokeswoman for the CML said: “Repossessions would still have fallen in the first quarter of the year as our footnote says, just less sharply. Any distortion will be one of the exact timing of repossessions during 2015, not of the underlying trend.”

A spokesman from Citizen’s Advice said any borrower facing mounting arrears should not feel tempted to hand their keys back in an attempt to minimise their debts.

He said: “Borrowers may be tempted to just leave the property and hand back the keys to their mortgage lender before they get an outright possession order. However, they won't gain anything by doing this.

“Borrowers will still be responsible for mortgage payments, buildings insurance and other costs until the property is sold, and will still have to make up any shortfall if the sale doesn't make enough to cover what they owe.”

Earlier this week the government sold another tranche of shares in taxpayer-backed Lloyds Banking Group, reducing its stake in the bank to below 20%.

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, declined to comment on firm-specific issues but said: “I am impressed by the continuing ability of nearly all mortgagees to meet their commitments. Levels of arrears continue to decline, supported by great market rates.”

The CML figures showed that in numerical terms, there were 113,900 loans in arrears in Q1. Of these, just 24,400 were in the most severe arrears band (more than 10% of balance), equating to 0.22% of all mortgages.

This is the smallest number and proportion of mortgages in the most serious arrears band since the end of 2008.