Surge in home repossessions is no reason to panic

Very few actions begun in the court lead to repossession. In most cases a judge will attempt to help both the borrower and the lender reach an agreement about how the outstanding debt can best be discharged.

Mortgage lenders are adamant that they are seeing no corresponding rise in the numbers of properties they are taking into repossession, although these too are expected to climb this year.

The Council of Mortgage Lenders predicts about 10,000 properties throughout the UK will be seized back from borrowers this year - up from 6,230 last year.

An increase for sure. Even so, the CML points out that repossessions remain close to record lows. The long-running average is about 35,000 annually, while at the height of the last property recession something in the region of 75,000 property owners lost their homes each year for several years.

Neither, though, can this latest development be ignored. It comes at a time when bad news is being writ large. Both the economy and the housing market have slowed. Inflation seems to be picking up. Interest rates may have to rise to nip it in the bud. Pensions are all but bankrupt, putting pressure on company profits, which could stall the economy further.

Consumers have borrowed up to the hilt, leaving little room for manoeuvre should times get seriously tough. We are sitting on a trillion-pound debt mountain, which dwarfs the national debt of many significant economies.

Against this we are poised for the big Sipp revolution. The arrival of new-style self-invested personal pensions next April introduces big tax breaks for investing in residential property, potentially refuelling the property boom and sending prices and borrowing even higher.

Of course, not everyone can come to the ball, and at some stage this glitzy exclusive party will come to an end. Let's just hope it does so with a whimper rather than a big bang.

Second thoughts

OUR column last week discussing the possibility of a secondary market in pension funds could hardly have been more prophetic. Two days later Marconi announced a plan to ringfence its pension fund and cut it adrift as part of a deal to sell 75% of the business to Ericsson.

The bulk of the business goes to the Swedish firm for 1.2bn. Of this, 675m is put aside for the pension fund, with 185m going to shore up its black hole and 490m into a separate account to pay future pensions. The rest goes to shareholders.

The pension fund and what is left of the company remains listed on the stock market under the new name of Telent. The hope is this will be the first of a number of shell pension funds which are tradeable, and a pioneer in the creation of the secondary market.

We can't claim all the credit in predicting such a development, as we were largely commenting on the thoughts of shadow industry spokesman David Willetts. Nevertheless, it was timely and puts us ahead of the pack in terms of grappling with these difficult issues.

I spent much of last week talking to both the pensions and investment industry to gauge their response to Marconi's move, and how such a market might mature further. Disappointingly, I largely drew blanks. It seems there are more questions than answers.

The slightly reassuring conclusion is that members of the scheme are probably in a better position now, following the new injection of cash, than they had been previously. That said, no-one can foresee the future, and should anything go horribly wrong there is no longer any big company standing behind the pension promises to make good further shortfalls.

There remains a nagging suspicion that, for all the hype surrounding the deal, the Marconi pension fund could yet one day end up in the Pensions Protection Fund, bailed out by other companies.

The one question that no-one seemed to be able to answer satisfactorily was why anyone would want to invest in such an animal?

"Well ... it is just like investing in second-hand endowments," investment experts grunted back at me after a long pause for thought. Only it isn't, because one day endowments pay out. There is no obvious maturity value here. I mean, where would the dividend come from? Similarly, parcels of mortgages are a common investment, but these bring with them an income stream.

The gamble in this case seems to hinge on the suspicion that when the last pension is paid, there will be money left in the fund which could be distributed to shareholders. A vain hope, I should have thought, given the latest news about us all living even longer.

As with all deals, it will come down to price. If it's cheap enough, there will be buyers willing to take a slice of the action.

After all, there is no shortage of traders willing to deal in Third World debt. Who's to say one day junk pensions won't be as commonplace as junk bonds are today.

Taxing screw-ups

IT SEEMS that the 2bn overpaid in tax credits will not be automatically clawed back from families who were overpaid up to 1,000, as was at first thought. The Treasury has decided they will be given a chance to register a complaint and their individual circumstances investigated before they are forced to refund overpayments.

We welcome this concession. No-one wishes to see families, often struggling with young children, in dire straits because of screw-ups by the Revenue & Customs.

However, this whole fiasco remains woefully disconcerting. Other taxpayers, also in many cases struggling against the odds to hold their heads above water, must foot the bill for the Revenue's blunders.

We have recently seen the reprehensible spectacle of pensioners jailed in protest at sharp rises in their council tax. It is hard not to conclude that our entire system of taxation is in danger of breaking down. Or as Hamlet might have said: "There is something rotten in the state of Denmark."

Surge in home repossessions is no reason to panic - for now at least