According to the Council of Mortgage lenders (CML) in 2004 just 8200 properties were repossessed. In 2008 this figure had increased to 40,000. At the beginning of 2009, the Council predicted that up to 75,000 homes may be repossessed during the same year. Whether this figure is accurate or not remains to be seen. However, it is without doubt that the number of homes being repossessed is on the increase.

There has been much discussion in the press about government pressure on mortgage lenders to act with compassion when dealing with their clients who are struggling to maintain payments. As a result, if monthly mortgage payments are not being met, many mortgage lenders are attempting to undertake a review of the debtor’s circumstances to try and understand the problem. However, if the debtor is clearly unable to maintain their mortgage payments, lenders still seems reluctant to do more than simply initiate steps to repossess the property.

I would argue that mortgage lenders can do much more to help debtors while at the same time protecting their investment. Very often where individuals are struggling with debt, they will maintain payments in the areas they perceive are the most important. This is often their unsecured debts such as credit cards and personal loans largely because of the perceived cost of late payment in terms of added interest and late payment charges. Because there are not enough funds to go around, the secured loans such as a mortgage often get pushed to the bottom of the queue and fall into arrears.

Where these circumstances occur, the real way to aid a debtor is to help them properly understand their financial situation and help them undertake the practical steps to really resolve the problem. A full analysis of the debtor’s income, expenditure and debts (both secured and unsecured) should be undertaken by a trained debt advisor. Then solutions which will enable the debtor to get back in control of their finances should then be introduced and discussed. By this I mean solutions such as debt management, Individual Voluntary Arrangement or even Bankruptcy. These solutions are designed to protect the payments of priority debts such as Mortgage payments by freeing up income which would otherwise be used to repay unsecured debt.

Clearly the implementation of debt management solutions is not necessarily welcome for unsecured creditors. If an IVA or Bankruptcy solution is proposed, the unsecured creditors are likely not to have all of their money returned. Similarly if a Debt Management plan is used, unsecured creditors will have to wait much longer for a return. However, it is the general view of commentators that a stable housing market and minimal home repossessions is important for the underlying stability of the economy. In turn, a stable economy will lead to economic optimism and the likelihood that individuals will increase their appetite for unsecured borrowing. This in turn will ultimately benefit unsecured lenders.

In my opinion, this is exactly the right view to take. As such, rather than simply threatening repossession if payment is not forthcoming, mortgage lenders should work with debtors to truly understand their financial situation. They should then suggest and help implement real debt management solutions which will get debtors back in control of their finances and help them maintain their mortgage payments. If this approach were to be adopted by mortgage lenders, I believe the number of home repossessions would be significantly reduced to the benefit of borrowers, lenders and the economy as a whole.