Bart Lambrecht interviewed by Financial Times on mortgage repossession rates and unemployment

Bart Lambrecht interviewed by Financial Times on mortgage repossession rates and unemployment

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.

FT research has identified five areas of the UK which top two key measures: mortgage repossessions rates and unemployment rates. The areas are Merthyr Tydfil, Blaenau Gwent, Barking, Dagenham and Newham. Three of these five areas had an above-average rise in house prices in the years 2002-2007 according to Land Registry data. All five areas are in regions with above-average rates of home ownership and each has relatively large numbers of workers with limited education and skills.

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.