The CML UK Arrears and Possessions Forecasts are widely respected. Acadametrics UK Arrears and Possessions Forecasting service provides a means to examine the effect of alternative macroeconomic scenarios upon repossession outcomes.

We employ the CML national loan book data, published quarterly, within a series of models originally developed for us by Dr Satchell and Baron Chan at the University of Cambridge to forecast national arrears and possessions under a variety of scenarios as described in our 2008 paper. Dr Satchell is currently reviewing the model with Warapong Wongwachara and the paper preparatory to our next annual model run – please email information@acadametrics.co.uk if you would like to be kept informed.

Satchell/Chan employed a three stage forecasting model. The first stage takes the significant macroeconomic variables (unemployment, house price growth, inflation, mortgage rates and GDP growth rate) and uses them to predict both a loan to value percentage for first time buyers and an affordability measure. The loan to value ratios, affordability measures and house price growth are then used to predict arrears. Finally, arrears, loan to value and the significant macroeconomic variables are used to forecast possessions.

The model is pre loaded with three scenarios. Two represent factual downturns – the mild downturn in 1973-1975 and the 1989-1991 “worst case” recession which are fully described in our Mortgages in Shock (MIS) publication available upon request to information@acadametrics.co.uk

The other scenario represents the long term UK average and a benign environment. All scenario inputs can be varied as lenders require. Our UK Arrears and Possessions Forecasting service provides a national default expectation benchmark against which lenders may compare the default anticipated from their own portfolios. In view of the business requirements of the risk management process and the regulatory needs of Basel II, the model is fully flexible in allowing lenders to design levels of stress suited to their individually unique portfolios.