Mortgage arrears figures remain low

Mortgage lending was flat in the first three months of 2020 compared with a year ago with an increase in buy-to-let activity offset by a drop in first-time buyers, according to UK Finance’s Household Finance Review for Q1 2020 .

The report finds also highlighted that there was a modest pick-up in arrears towards the end of the quarter as the covid-19 pandemic began to impact homeowners, the number of mortgages in arrears remains lower than a year ago.

Meanwhile, there was a sharp fall in credit card borrowing in the first quarter of 2020 as consumer spending falls in response to Covid-19 lockdown, while there was little movement seen in personal loans and overdraft activity over the quarter. The growth in instant access deposits continued in the quarter.

Commenting on the review Eric Leenders, Managing Director, Personal Finance said “Following a subdued year in the mortgage market in 2019, any signs we might have seen of improving confidence translating into increased homemover activity at the turn of this year have currently been overtaken by the impact of the Covid-19 pandemic.

“Further evidence of the crisis is evident in unsecured borrowing. The sharp reduction in consumer spending has flowed through to a fall in credit card borrowing. We’ve also seen further increases in deposits held by households. “This Review does not capture the various support measures to households that the industry has enacted, such as three-month payment holidays and a repossession moratorium. By mid-May approximately 1.8 million mortgage payment deferrals had been arranged for customers. Similar payment holidays for personal loans and credit cards were introduced at the end of March and will be reviewed in depth in our next household finance review.”

John Goodall, CEO at Landbay, said “Buy-to-let started the year really strongly and this is reflected in the UK Finance figures. January and February saw really strong demand for new purchases.; UK Finance shows a 7% year-on-year increase, but what we saw was significantly in excess of that. While the Coronavirus lockdown from mid-March has hampered this, there is still a notable demand from landlords and investors. What these figures don’t show is the effect of payment holidays. While there is demand, borrowers who are trying to take out new mortgages whilst also taking payment holidays on existing parts of their portfolio may find it harder to buy than they did before.”

“While there is no chance that we will jump straight back to the numbers we saw at the start of the year, as soon as confidence returns the market should also return to normal, although I don’t expect a ‘V’ shaped recovery, but a longer, more gradual increase. Providing of course that we don’t get a second peak in the virus, as at that point all bets are off.  Fundamentally it’s about demand and supply.  This morning’s figures showed a drop in first-time buyers even before Covid-19 hit and following the pandemic it is highly likely that people will be renting for much longer, so the need for private buy-to-let will be greater than ever.”

Richard Pike, Phoebus Software sales and marketing director, said “We can now see exactly how the first quarter of the year panned out and how the coronavirus lockdown had an almost immediate affect on the housing market.  It is interesting though to see that the first-time-buyer market had been declining across most of the country even before the crisis.  This could be a trend that continues, at least until housebuilders get back to full capacity and new build properties start to become available again.”

“However, from every negative there is a positive and it appears that, without the general ability to ‘go out’ and spend money, people have not only spent less on credit, but have managed to save and also pay off debt. The number of borrowers that have taken payment holidays at 1.8 million to date, is considerable and lenders will have to be vigilant as the next wave apply for the extension until the end of October.  As repossessions are also on hold, we could find that come November we have many households that will find themselves facing higher monthly payments than they had been managing before the break.  This will be something that lenders will need to manage carefully.”