Are you at risk of losing your home this year?

According to a recent and rather worrying report from the Financial Services Authority over one million homeowners could be at risk of losing their homes over the course of the next eighteen months, with a combination of factors increasing the chances of many families losing their homes.

The Financial Services Authority has expressed concern over the number of homes that could be repossessed within such a relatively short period, and has outlined who is most likely to be at risk of losing their homes.

The FSA data states that those most at risk are homeowners that took out a mortgage between April 2005 and September 2007, when property prices were still rocketing.

It is estimated that around one fifth of homeowners that took out their mortgage between these periods – including those that took out home loans and those that decided to remortgage to find a better deal – could end up having their properties repossessed.

The FSA states that many households are already on such a tight budget because of high living costs that even the smallest increase in payments or the smallest drop in income could result in them no longer being able to keep up with their mortgage repayments.

Amongst the factors that have been identified as affecting the ability of many homeowners to keep up with various repayments are the high interest rates, which whilst they did fall in December are still much higher than previously; the high cost of petrol, which has been rising for some months now; the increase in energy costs, with many energy suppliers having already hiked up energy usage costs considerably and others set to follow suit; and the rising inflation on food.

The Financial Services Authority has put together a set of three risk factors, and states that those meeting two or three of these factors are at risk of losing their homes.

The risk factors are: having a mortgage loans for more than 3.5 times the amount of annual income that you earn; paying lower than a 10% deposit when you took out the mortgage loan; and having a repayment period of over 25 years.

In its Financial Risk Outlook the regulator stated that there are around 150,000 homeowners that have all three risk factors, and these are the ones that are most at risk.

If all 150,000 of these people with all three risk factors have their homes repossessed this would be double the current record of just over 75,000 from 1991 according to the Council of Mortgage Lenders.

The remainder of the higher risk group that face losing their homes are more at risk of financial difficulties that could eventually lead to them losing their homes. The level of repossessions has already rocketed recently. Between January and June 2007 there were around 14,000 repossessions, whereas in the same period in 2004 there were under 4000.

One industry professional stated: ‘It is a “drip by drip” problem. An extra £5 on their mortgage, £10 on their council tax bill and so on is really putting the squeeze on people who are financially overstretched already.’

An official from the FSA said: ‘We are not saying this scenario will definitely happen but we want to raise awareness of the risks. With continuing uncertainty over the economy, it is more important than ever for people to take care of their finances. ‘Anyone with debts, including mortgages, should take stock, review their budget and make sure that it is affordable if there is change in circumstances, such as a job loss or a rise in interest rates.’

In light of the predictions and the comments that have been made the Financial Services Authority it is advisable for homeowners to assess whether or not they are at risk of getting into financial difficulties to the point where they could end up missing mortgage repayments and ultimately losing their homes.

If this is the case it is important to take action immediately rather than waiting around for the worst to happen. This means going carefully through your finances to weed out any unnecessary payments and make cutbacks wherever possible, looking at bringing in another income if necessary (perhaps through a second job), and even going to seek professional debt management advice in order to get help with your finances.

If you are already on the brink of missing a mortgage repayment you should contact your lender rather than just missing the payment and hoping for the best.

If you explain the situation to your lender you will probably find that many will be sympathetic, particularly in the current financial climate where many people are experiencing financial problems.

Your lender may be able to agree to an arrangement with you, such as extending the mortgage term or accepting reduced payment for a while whilst your sort out your finances.