Many of Britain's Homeowners May Be at Risk of Repossession

A leaked government report has suggested that the number of home repossessions could rise to unprecedented levels in 2012. We consider how you can protect your home in times of financial difficulty by ensuring you have a financial buffer.

In 2009, the Council of Mortgage Lenders (CML) reported 48,000 homes were repossessed. This figure was far lower than the 75,000-90,000 predicted.

However, a recently leaked government report has suggested that by 2012, the number of homes repossessed by mortgage lenders could rise to 175,000.

The reason why far fewer homes have been repossessed than expected since the beginning of the recession is largely because low interest rates have reduced the cost of mortgage payments.

Many homeowners have suffered reduced incomes and even periods of unemployment. However, these reductions have been offset by lower mortgage costs therefore keeping them from falling into arrears.

Devastating effect of cuts and interest rate rises

Unfortunately the economic situation is due to get far worse for British homeowners.

Firstly, the government is being forced to make massive cuts to public spending. This is going to filter through to reduced incomes and job losses in both the public and private sectors.

These cuts alone will be enough to push many homeowners into a position where they are no longer able to afford their mortgage payments.

On top of this, the problem will be compounded when interest rates start to rise. Many economists predict that this will happen by the end of 2011. Rising interest rates will result in significant increases to the cost of mortgage payments.

Combined with income reductions, this will mean that a large number of people will simply not be able to continue to pay their mortgages. They will fall into arrears and this will then lead to their home being repossessed.

Plan a financial buffer

If you are worried that if your income falls or interest rates rise you may struggle to pay your mortgage, it is very important to take action now.

It is far easier to manage a financial crisis if you have savings to fall back on. The majority of people have little or nothing set aside for a rainy day. If this is you, then you need to plan to change this.

The best way to do this is list out all of income and monthly living expenses. Have a look where you can cut back and save the money that you do not spend.

This money should then be put aside to use as a financial buffer if your finances get tight. Saving is always difficult but to make it easier, make sure you put the money you want to save aside at the beginning of the month, not the end.

Take action now

Home repossessions have been unexpectedly low over the past eighteen months largely because of low interest rates. However, this situation will change.

Interest rates are expected to rise again by the end of 2010, automatically increasing the cost of many mortgages. In addition, government cuts will reduce many family incomes.

This combination of events will put many family incomes under severe pressure and lead to many not being able to afford their mortgage payments.

It is therefore extremely important to recognise that your financial position could be about to change. If you do not have any savings which could help fill the gap and maintain your mortgage payments, you should act now to change this before your options run out.