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Mortgage arrears in UK continue to rise with buy-to-let problems worse

The number of repossessions is also climbing but is likely to be around 45,000 by the end of the year in line with forecasts, the figures from the Council of Mortgage Lenders show.

The CML reports that 1.44% of mortgages were at least three months in arrears as at the end of September 2008. This was up from 1.33% at the end of June. The number of cases in arrears at the end of September was 168,000, 8% higher than the 155,600 at the end of June.

Unsurprisingly in a worsening economy, the number of households in arrears by the end of the year is likely to exceed the previous forecast of 170,000.

The CML also reports that 0.1% of all mortgaged properties were repossessed in the third quarter of 2008, up slightly from 0.09% in the second quarter. This equates to 11,300, 12% higher than the 10,100 in the second quarter. The CML continues to expect the total number of repossessions this year to be around 45,000, as forecast in October 2007.

In the past buy-to-let mortgages have shown better performance than the overall market in terms of payment profile. But in the third quarter the payment profile of buy-to-let lending has worsened more rapidly than the market as a whole.

Reasons include falling rents and an over-supply of rental property in some areas, resulting in some landlords being unable to let their property or achieve high enough rents to support their borrowing commitments.

Fraud is also likely to have been a contributory factor. In addition, in line with the rest of the market, it is more difficult to sell as an exit strategy, while the availability of new buy-to-let mortgage finance has contracted and criteria have tightened.

CML director general Michael Coogan re-iterated that repossession should be a last resort. 'Most borrowers who face payment problems successfully keep their home by working with their lender. Anyone worried about mortgage payments should contact their lender at the earliest opportunity, before arrears start to build up,' he said.

He called upon the government to take steps to help those in difficulties even further. 'Increased help with housing costs is needed for a wider range of borrowers facing unforeseen repayment difficulties where there would otherwise be little prospect of early improvement. Next week's pre-Budget report is an opportunity for making much more assistance with mortgage payments available for people whose income is reduced, as help is currently far too limited,' he added.

Looking ahead, he said, conditions in the wider economy suggest a worsening picture for mortgage arrears. 'While lenders cannot change the underlying causes of financial difficulty, such as unemployment, they can make sure that their response to borrowers is constructive and seeks to avoid repossession wherever other solutions can be found,' he commented.