The number of mortgages in arrears of 2.5 percent or more of the outstanding balance fell again in the third quarter of 2017, but cases of possession edged upwards from a historically low level according to new figures released by UK Finance. At 88,300, the number of loans in arrears was two per cent lower than in the second quarter of the year (90,400) and at its lowest level since this run of data began in 1994.

Chart 1: Arrears on mortgages, 2.5% or more of balance outstanding

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Source: UK Finance

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The number of properties taken into possession in the third quarter nudged upwards to 1,900, the same total as in the first three months of this year. The second quarter total of 1,800 cases of possession had been the lowest since quarterly data began in 2008, and the proportion of properties taken into possession (at 0.02 per cent) has remained unchanged in each period since the second quarter of 2015. Within the total, the number of owner-occupied properties taken into possession increased in the third quarter from 1,100 to 1,300, while buy-to-let repossessions fell from 700 to 600. The last time the number of owner-occupied possession rose was in the first quarter of 2014, when the total increased from 4,900 to 5,000.

 

Chart 2: Number of possessions, owner-occupied and buy-to-let markets

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Source: UK Finance

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The number of mortgages in arrears fell across all bands, apart from those owing 10 per cent or more of the outstanding balance. The number of mortgages in this category edged up by 0.4 per cent from 25,500 to 25,600, partially reversing a four per cent fall in the number of loans in this category in the second quarter of the year.

A total of 83,300 owners-occupiers were in arrears of 2.5 per cent or more of the balance, down two per cent from 85,300 in the second quarter. Reflecting the pattern across the wider market, owner-occupier arrears declined in all bands apart from those owing 10 per cent or more of the balance, with the total in this category edging up from 24,400 in the preceding quarter to 24,500.

Buy-to-let arrears were flat, apart from a small increase in those with higher levels of debt. Overall, the number of buy-to-let mortgages in arrears increased by two per cent to 5,100 (5,000 in the second quarter).

 

Chart 3: Arrears by bands as a proportion of total balance

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Source: UK Finance

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Commenting on the data, UK Finance’s Head of Mortgages Policy June Deasy said “Even a small rise in mortgage possessions is disappointing but, after a long period of declining numbers, it was inevitable that they would rise again at some stage. Both arrears and possessions remain low by historical standards and look set to be lower for the year than we predicted at the start of 2017.”

“We expect the vast majority of mortgage borrowers to continue to manage their finances successfully but they should continue to keep their plans under review. Any customer who thinks they may experience payment difficulty should always speak to their lender at the earliest opportunity. Lenders remain committed to working with borrowers to keep them in their home wherever possible, and possession continues to be the last resort.”

Commenting on UK Finance’s mortgage arrears and possessions stats, Steve McNicholas, Managing Director – Credit and Marketing Data, Callcredit Information Group, said: “It is encouraging to see that mortgage arrears have continued to fall across the UK in Q3. This is good news for consumers, lenders and the UK economy as a whole.

“This trend is reflective of a combination of low interest rates and a better understanding of credit report data and affordability assessment by lenders. However, with the number of property possessions increasing and in light of the recent interest rate rise, lenders mustn’t become complacent and should look to further enhance the information used to make lending decisions. Particularly, more in-depth affordability data, enriched with transaction level data, which may be made more readily available once Open Banking is realised. Key to this is looking at transaction categorisation services combined with proprietary credit analytics that enable lenders to make smarter underwriting decisions.

“If we are to maintain this positive trend, continuously assessing a borrower’s affordability is key – especially as mortgage rates begin to rise. Affordability also needs to be viewed through the lens of increased levels of unsecured consumer lending, it is about understanding the whole picture not just one element.”