MercoPress. South Atlantic News Agency

UK state-control banks mellow home repossession actions

Chancellor Alistair Darling granted struggling homeowners another six months

Britain's Royal Bank of Scotland has announced that it will give struggling homeowners at least six months before launching repossession action. The NatWest parent said it was doubling the three-month breathing space currently offered to borrowers who fall behind with mortgage repayments.

News of the move comes days after the British Government bought 58% of the bank's shares for £15 billion - effectively bringing it under state control. Stephen Hester, chief executive of the Royal Bank of Scotland, wrote in the Financial Times that the bank was "conscious that many people face anxiety" about repayments in the tough economic climate. "In our UK residential mortgage lending, and as a banker to small businesses, we are determined to serve customers well in the difficult times ahead and have commitments to Government that we intend to meet in letter and spirit", he said. It is expected that other banks may also follow suit as the Government calls for greater help from banks for cash-strapped borrowers and businesses. MPs are also reportedly working on plans for statutory codes of practice in the banking industry, which could replace the current voluntary system. The move by RBS comes amid pressure from Chancellor Alistair Darling to ensure banks do more to help households in the current economic downturn. RBS has already announced that it will guarantee overdraft rates and contracts for its business customers for at least a year. It will also return to "normal" lending levels, as part of the Government's recapitalisation package for the banking sector. Meanwhile the Bank of England reported that mortgage lending collapsed during October, diving by nearly 70% to reach the second lowest figure on record. Just £459 million was advanced during the month, well down on September's £1.49 billion and only 6% of the level for October 2007. The steep fall was driven by the ongoing shortage of capital that banks have to lend. It may also reflect a renewed tightening in their lending criteria in the wake of the collapse of Lehman Brothers in September, which triggered a new round of volatility in the financial markets. The figure was the second lowest recorded by the Bank since it began collecting data in this format in 1993. The low was reached in August this year when net lending slumped to just £176 million as potential buyers delayed purchases while they waited for the Government to announce its intentions on stamp duty. Total mortgage advances were also subdued during October, with £16.99 billion advanced, just over half the sum lent in October 2007, and the lowest figure recorded since June 2002. But, on a brighter note, the number of mortgages approved for house purchase has remained stable for the past four months. Around 32,000 new loans were approved for people buying a property, only slightly down on September's figure of 33,000, suggesting the market may have bottomed out at a very low level. Net lending by building societies reached £413 million during October, a slight improvement on September's £314 million, but 45% below the figure for October last year.