Credit, Collections & Insolvency News
Latest figures from UK Finance have indicated that mortgage arrears figures fell in the fourth quarter of 2021.
The figures showed that overall, there were 79,620 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance at the end of December 2021, a reduction of 750 homeowner mortgages compared with the previous quarter. This is five per cent lower than the same period a year prior.
Within the total, there were 26,850 homeowner mortgages in early arrears (those between 2.5 and 5 per cent of balance in arrears), a decrease of two per cent on the previous quarter and 14 per cent fewer than the same period in 2020. These early arrears figures remain substantially lower than the numbers seen before the pandemic began.
Also within the total, there were 30,010 homeowner mortgages with more significant arrears (representing ten per cent or more of the outstanding balance), 350 more cases than the previous quarter. This figure has risen – from a low base – since Q1 2020, although the rate of increase has slowed. These customers, who were already in relatively deep arrears positions prior to the pandemic, will likely have made use of the full six months of Covid-19 payment deferrals scheme and are equally likely to be receiving (or in need of) further support through lenders’ tailored forbearance options. Customers who are facing financial difficulty are encouraged to contact their lender early, as they stand ready to help.
There were a total of 6,010 buy-to-let mortgages in arrears of 2.5 per cent or more of the outstanding balance in the fourth quarter of 2021 – an increase of two per cent compared with the previous quarter but one per cent down on the number a year previously.
There were 390 homeowner mortgaged properties and 320 buy-to-let mortgaged properties taken into possession in the final quarter of 2021. It is important to note that year-on-year comparisons will look unusually large due to the Possession Moratorium from March 2020 – 1st April 2021, over which period no enforced possessions took place. In absolute terms, there were 20 fewer possessions in Q4 2021 compared with the previous quarter. The voluntary possessions moratorium ended on 4 January 2022, and the number of possessions will now gradually increase as the courts resume working through the backlog of cases accumulated over the first moratorium. It is important to note that these borrowers had been in financial difficulty prior to the pandemic. Possession is always a last resort after tailored support is exhausted and a thorough court-based process has carefully considered the borrower’s individual circumstances.
Eric Leenders, Managing Director of Personal Finance at UK Finance, said “It is encouraging to see that, at the end of a second year of economic and social upheaval, arrears have remained low and have in fact continued to trend down, even after the removal of government support for household incomes at the end of September. The industry moratorium in December ensured that possessions remained suppressed through the fourth quarter. However, there remains a material backlog of possessions cases, dating back to before the pandemic, which will be resolved through this year. This will see possessions increase gradually through 2022 as this process is managed.”
“Looking ahead, rising inflation and planned increases in National Insurance contributions are likely to squeeze household budgets through this year, creating upward pressure on arrears numbers. Additionally, any further Bank Rate rises in response to inflation will lead to increased mortgage payments for some, although the majority of borrowers are currently on fixed rates and will see no increase whilst on these rates. Despite these additional pressures, responsible lending rules in place since 2014 ensure that mortgages taken out since then have a built-in affordability buffer to cushion borrowers against shocks to income and payments, which will moderate the extent of increases in arrears.”
“Lenders continue to provide tailored forbearance and support to borrowers who need help and, as always, we encourage anyone experiencing financial difficulty to contact their finance provider as soon as possible to discuss options available.”
Paul Heywood, Chief Data & Analytics Officer at Equifax said “Far fewer homeowners than feared fell into arrears on their mortgage repayments in the early months of the pandemic, thanks in part to emergency consumer protections such as furlough and mortgage payment holidays. Even today, we are still seeing a relatively low level of arrears as most homeowners in the UK took advantage of lockdowns to build up rainy day savings and insulate against future income shocks.”
“That picture, however, is quickly changing. Prices are rising, interest rates are creeping up, and unless wages keep pace, most borrowers will see their finances squeezed over the coming months. Equifax data suggests that these financial pressures are already leading to growing numbers of people falling behind on loan repayments in the consumer credit and motor finance space, and we would expect mortgage arrears to follow suit in the coming months.”
“As the UK walks headlong into a cost of living crisis, credit affordability is more important than ever, and we encourage credit providers, whether they be lenders, telcos, or utility companies, to be looking closely at how innovations such as Open Banking can help them to identify people in need of help before they fall into acute financial difficulty.”
Stuart Anderson, Chief Commercial Officer at Target Group said “The level of mortgage arrears remained stable since its last update, falling by just 1% since the previous quarter, while possessions also remained at a low level in Q4 2021, with a 7% decrease.”
“This is reassuring news, however, against the current backdrop of increased inflation and interest rates, and the subsequent hikes in everyday consumer prices, energy bills and mortgage payments, the chances are these pressures will combine to pile onto loan repayments – so these numbers are likely to rise.
“No doubt lenders are responding and forbearance and arrears management processes will be high on the agenda. ”
“The pandemic and these aftershocks have increased the complexity of borrowers’ positions and additional support will be increasingly required to ensure repossessions remain at a relatively low level. Patience, efficiency and empathy will be the watchwords for the industry as the impact continues to unwind.”
