As we move into the second half of 2023, recent key developments shed considerable insight into what might happen next.
For a start, there was the Bank of England’s (BoE) announcement that it intended to increase the base rate by 0.5% to 5% in June which propelled interest rates to their highest level since 2008.
Many analysts were surprised about this given that the Governor of the BoE, Andrew Bailey, had said at the start of May that we could be near the peak for interest rates.
It was also noteworthy when the Chancellor of the Exchequer, Jeremy Hunt, said in an interview at the end of May that he was comfortable with further interest rate rises – even if they push the UK into a recession – as “inflation is a source of instability”.
UK inflation currently remains higher than the Eurozone and the US despite the BoE being the first major central bank to start increasing rates back in December 2021.
While it remains to be seen what the BoE does next, the likelihood of further base rate increases daily.
Then there’s the issue of property prices to consider…
According to Nationwide, UK house prices defied expectations by growing slightly in June 2023, despite annual prices falling at their fastest rate since 2009.
The surprise monthly rise of 0.1% reversed a 0.1% fall in May and confounded economist forecasts of a 0.3% fall.
Nonetheless, prices were 3.5% lower in June compared with a year earlier, which was the sharpest rate of decline since 2009.
This annual drop was less than the 4% fall that had been predicted by many economists – although some forecasters have predicted that prices will ultimately fall by 12% from peak to trough.
Inextricably linked is the fact that the latest HM Revenue and Customs figures show that home sales fell by 27% year on year in May.
Indeed, some consider these transactions a more accurate reflection of market health than property prices…
It’s equally important to appraise what’s happening when it comes to repossessions…
According to UK Finance, the number of mortgage repossessions across Britain jumped by more than a quarter in the first three months of 2023 as households increasingly struggled with the rising cost of living.
The trade association found that there were 1,250 repossessions in the UK during the first three months of the year which was 27% higher than the 980 from the same period in 2022.
So, what can we learn from the past about what might lie ahead?
The evidence would appear to suggest that the current economic situation will worsen before it improves.
The second half of 2023 is likely to be a period of difficult adjustment meaning that lenders must be more cautious than ever about loan-to-value ratios and default loans.
At CG&Co, we’re well aware that lenders have taken the long view both during the pandemic and in its aftermath by actively working with borrowers who have found themselves struggling financially.
But their patience and forbearance – for obvious reasons – cannot last indefinitely and there’s every reasonable expectation now that we will continue to witness a dramatic increase in repossessions in the second half of 2023 and beyond.
Lenders owe it to themselves to work with the most proactive and knowledgeable property receivers.
The average time from claim to mortgage repossession for CG&Co’s clients has consistently been far less than the national average both during the pandemic and in its wake.
As the economic headwinds continue mounting for lenders, we’ve no intention of deviating from this approach.
Edward Gee and Daniel Richardson are property receivers and insolvency practitioners at CG&Co.
