U.K. home repossession claims by mortgage lenders increased 16% from a year ago to their highest level since the early 1990s, Bloomberg News reported Friday.

The U.K.'s Ministry of Justice said possession claims, the first step in the foreclosure process, increased to 38,688 in Q1 2008, from 27,530 in Q1 2007, Bloomberg News reported.

Anglo-American housing slump

London-based economist Mark Chandler told BloggingStocks Friday the large foreclosure rise indicates that the air is easing out of the housing balloon, and that the housing correction that began in the United States, is "clearly washing shore in the U.K."


"For about the last six months there had been considerable debate on the depth to which the U.K. would be experience a housing slump similar to America's housing recession, but I think now the evidence is mounting that the housing slump is well under way here," Chandler said. "Prices have dropped about 8-15% just about everywhere in the past year, except in sections of London, and there were those who argued the slump would not be that deep. But the new foreclosure data says that's definitely not the case."

However, Chandler said the impact of the housing correction on Britain's economy is still a matter of considerable debate. Some data he reviewed from the Bank of England suggests that Britain will be in worse shape than the U.S., because Britain's housing boom features a higher median sales price per median income than the U.S., he said. Other data suggests it may not contract the economy as much as it has it the U.S. because Britain has a lower percentage of mortgage resets, which suggests a lower U.K. mortgage default rate in the year ahead, all other factors being equal, he said.

BOE rate cut fait accompli?

In either event, Chandler said Friday's foreclosure data "will rachet-up pressure on the Bank of England to lower interest rates." On Thursday the Bank of England left its key, short-term interest rate unchanged at 5%.

"The bank has been almost as much of a hawk on inflation as the ECB," Chandler said. "Everyone is concerned about rising inflation driven by oil, but oil is not as much of a threat in the U.K. as it is in America because of our transportation system," Chandler said. "I fully expect at least a quarter-point cut at their next meeting to stimulate growth."