Mortgage arrears and possessions in the UK reach all-time low

Mortgage arrears and possessions in the UK residential market continue to remain historically low, according to date from UK Finance.

It latest update report covering the second quarter of 2018 show that there were 76,740 home owner mortgages in arrears of 2.5% or more of the outstanding balance, some 8% fewer than in the same quarter of the previous year.

Within the total, there were 23,190 home owner mortgages with arrears representing 10% or more of the outstanding balance, some 4% fewer than in the same quarter of the previous year.

There were 4,440 buy to let mortgages in arrears of 2.5% or more of the outstanding balance, some 6% fewer than in the same quarter of the previous year.

Within the total, there were 1,080 buy to let mortgages with arrears representing 10% or more of the outstanding balance and this was 2% higher than in the same quarter of the previous year.

Overall 1,060 home owner mortgaged properties were taken into possession in the second quarter of 2018, some 5% fewer than in the same quarter of the previous year, 520 buy to let mortgaged properties were taken into possession, 24% fewer than in the same quarter of the previous year.

‘Arrears and possessions are at an all-time historic low since we first started collecting this data over 24 years ago. While this is positive, last week’s base rate rise coupled with the disappointing uptake of the Support for Mortgage Interest (SMI) loan could see arrears creeping up in the coming months,’ said Jackie Bennett, director of mortgages at UK Finance.

‘With well over 90% of new loans taken out at fixed rates, most recent borrowers will see no immediate impact from the Bank rate increase. However, anyone with concerns about managing their mortgage should contact their lender to discuss the advice and support available. Repossession is always a last resort,’ she added.

The Intermediary Mortgage Lenders Association (IMLA), welcomed the data. ‘These figures reflect both the considerable efforts made by lenders to treat borrowers in difficulty with forbearance, and the tighter affordability rules introduced by the financial services regulator, which has prevented some borrowers from over stretching themselves and getting into difficulty with mortgage repayments,’ said Kate Davies, IMLA executive director.

‘Last week’s base rate increase inevitably prompted speculation that arrears and possessions might begin to tick up once again. However, this data tells us that it is highly likely that the vast majority of households with a variable mortgage rate would still be able to cope if their lender passes on a small rate hike,’ she pointed out.

‘Lenders are acutely aware that any change to mortgage rates, combined with the impact of rate rises on other loans, can put pressure on household debt. This underlines the importance of borrowers having access to suitable mortgage deals which is why our members recently pledged to do more to help a minority of UK borrowers who are stuck on reversion rates,’ she added.

Ross Boyd, Founder of mortgage platform, Dashly, warned that Brexit uncertainty likely to crescendo during the next couple of years, and interest rates potentially edging further upwards, the pressure on household finances will almost certainly increase.

‘The jobs market is strong for the time being, and inflation not significantly above target, but conditions could deteriorate rapidly in the event of a chaotic withdrawal from the EU, with both businesses and consumers the victims,’ he added.

Mark Pilling, Spicerhaart corporate sales managing director, also warned that the governor of the Bank of England has already suggested that this will not be the last rate rise this year. ‘UK Finance recently announced that lenders have signed up to agree common standards, which will help existing borrowers on reversion rates who, because of stricter affordability criteria, are ineligible to move to an alternative product,’ he said.

‘However, there are currently over 150,000 mortgage prisoners, but these proposals will only help 10,000 people initially. For the other 140,000 there is a real threat that, as wages stagnate and they remain on high interest rates, they will fall into arrears,’ he explained.

‘Although it is good that some progress has been made, it is important for lenders, and mortgage owners, to now be looking at all the cases on their books and finding ways to help their clients out of this,’ he concluded.