Home Repossessions to double even if interest rates are held

Even modest increases in interest rates will push up the number of repossessions in Britain to the highest level since the housing market crash of the early 1990s, a forecasting group warned yesterday.

Business Strategies, part of the credit-rating agency Experian, said a one-percentage point rise in borrowing costs to 6.25% would result in 55,100 homes being taken back by lenders in 2009 - more than three times last year's 17,000 total. The consultancy said repossessions were set to double over the next two years even if the Bank of England left interest rates at 5.25%. It also said rising inflation meant tougher conditions for borrowers were on the way.

Experian's managing director of global economics, said: "Not only will interest rate increases have a dampening impact on economic growth and inflation, but there will also be a likely knock-on effect on bad debt. This is something that lenders will be well aware of, but many consumers will also need to consider carefully their future circumstances when assessing their financial position." At unchanged interest rates, Business Strategies predicted that repossessions would hit 38,900 by 2009, and a quarter-point increase next month followed by no change for the next two years would see the total increase to 42,700.

A half-point increase to 5.75% in May would push repossessions to 47,700 in two years. The total would jump to 55,100 if fears of rising inflation prompted the Bank to raise rates by half a point in both May and July. "Even if interest rates fall back in 2008, write-off rates [for bad debts] and repossessions are still expected to continue increasing until 2009."

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