The number of properties repossessed by mortgage lenders rose sharply last year, according to a report from the Council of Mortgage Lenders.

The number of repossessions rose from 8,140 in the first half of 2006 to 8,860 in the second half, bringing the total for 2006 to 17,000 - 65% higher than in 2005, the CML said.

This was broadly similar to 2001 levels and roughly 1 in 690 mortgages.

Back in December, the CML had forecast that there would be 18,000 repossessions in 2006, 2007 and 2008.  However, the rate of increase in repossessions slowed down toward the end of 2006, resulting in a more positive outturn than expected.

But the CML is now forecasting that repossessions will rise modestly to 19,000 in 2007 and 20,000 in 2008.  This reflects a slight worsening in prospects as a result of higher interest rate expectations since the previous forecast.

On arrears, the number of mortgages more than six months behind on payments fell by 8.5%, from 49,010 at the end of 2005 to 44,840 at the end of 2006.  This represents only 0.38% of all mortgages - approximately 1 in 260.

Shorter term arrears, of 3-6 months, also fell.  There was a 6% decline between the end of 2005 and the end of 2006, from 62,920 to 59,100 cases.

The CML expects short term arrears to rise during the course of 2007, mostly because of the effects of higher interest rates.  The effect may be more pronounced in the second half of the year than the first, since interest rates take a while to feed through into repayment difficulties for borrowers.  The strong likelihood is that the vast majority of these short term payment problems will be successfully managed by borrowers and lenders without becoming long term arrears cases.

Michael Coogan, CML director general, commented: "The arrears picture at the moment is fairly complex.  On the one hand, the wave of problems caused by previous interest rate rises has now worked through, so recently arrears levels have fallen.  On the other hand, interest rates are rising again, and payment shock may be an issue for some this year as their existing fixed or discounted deals expire.”