Bart Lambrecht interviewed by Financial Times on mortgage repossession rates and unemployment
Published 29 March 2011
Professor Bart Lambrecht of Lancaster's Department of Accounting and Finance is quoted in a story in the Financial Times which identifies five areas in the UK most at risk of repossessions. Professor Lambrecht argues that rising unemployment, high debt service to income levels and falling house prices may be to blame.
Professor Bart Lambrecht
Professor Lambrecht argues that rising unemployment, high household debt levels and falling house prices may be important factors in explaining rising repossession rates.
He studied the default and repossession wave of the late eighties and early nineties (see Lambrecht, Perraudin and Satchell (1997, 2003)) and found that declining ability to service debt is the key determinant that explains mortgage default. Declining ability to pay can be a result of a number of factors. For instance, redundancy can be very significant, especially if one is laid off in a region with high unemployment as it will take – on average – longer to find a new job. Redundancy also has a more detrimental effect if it hits the head of household.
Increased indebtedness also plays an important role because households with too much debt and too little savings are much less resistant to adverse events or economic shocks.
Finally, negative equity and falling house prices also contribute to rising repossession rates. Not only is it impossible for households to sell their way out of financial difficulty, lenders will typically also show much less forbearance. “If house prices are falling, it’s rational for a lender to foreclose on you sooner rather than later,” says Lambrecht.
Full story in the FT:
Double trouble: UK regions hit by unemployment and repossessions
Academic References:
- Lambrecht, B.M., W.R.M. Perraudin and S.E. Satchell, 2003, Mortgage Default and Possession: A Competing Hazards Approach, Journal of Money, Credit and Banking 35 (3), 425-442
- Lambrecht, B.M., W.R.M. Perraudin and S.E. Satchell, 1997, Time to Default in the UK Mortgage Market, Economic Modelling 14 (4), 485-499
