Preventing Home Repossession
The nationalised banks are coming under pressure to try and avoid repossessing homes. One can understand why. Home repossession is very painful for those involved, and an increased rate of home repossession would add to the number of properties on the market causing even lower house prices. Also home repossession can be an expensive process for banks themselves.
The Royal Bank of Scotland announced an increase in the length of failed mortgage payments before starting repossession proceedings. Now, the RBS will only act after 6 months of non payment, rather than 3 months.
It is a good publicity move and will be welcomed by the government who will want to avoid a political and economical costly rise in repossession rates. It will put pressure on other banks to follow suit and announce greater leniency before repossession.
RBS has one of the lowest repossession rates in the UK; its mortgage lending accounts for only 7% of its overall lending. Therefore, for the RBS this decision will not impose too many costs.
However, if other banks were to extend the period to 6 months, they may see a rise in the number of people not paying for 5 months as they take advantage of the more lenient terms. This could put pressure on their already damaged balance sheets making it difficult to finance new mortgage lending.
It is a difficult dilemma and although increasing the time before starting repossession, it is not without its drawbacks. If the banks were to reduce repossession rates, it may cause them to suffer from further liquidity problems. But, on the other hand, rising repossession rates would cause more problems for the housing market.
Original post by Tejvan R Pettinger