Arrears began to rise before payment holidays agreed

UK Finance has published its latest mortgage arrears and possessions update for Q1 2020 which indicate that there were 72,380 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance in the first quarter of 2020, six per cent fewer than in the same quarter of the previous year.

There were 4,420 buy-to-let mortgages in arrears of 2.5 per cent or more of the outstanding balance in the first quarter of 2020, six per cent fewer than in the same quarter of the previous year.

Whilst 1,070 homeowner mortgaged properties were taken into possession in the first quarter of 2020, 23 per cent fewer than in the same quarter of the previous year.

Separately 640 buy-to-let mortgaged properties were taken into possession in the first quarter of 2020, eight per cent more than in the same quarter of the previous year.

UK Finance says that the relatively small increase in arrears compared to Q4 2019 is likely due to the early effects of Covid-19, and the industry has since introduced multiple forbearance measures to reduce financial difficulties for borrowers who are in need of support. The level of arrears remains low by historical comparisons.

Jackie Bennett, UK Finance Senior Advisor, Mortgages, said “While the number of mortgages in arrears are down six per cent year-on-year for both homeowners and landlords, and the number of possessions down 23 per cent for homeowners, lenders know that coronavirus is currently causing financial difficulty for many customers. That’s why the banking and finance industry is working hard to support people during this difficult time, including providing more than 1.6 million mortgage payment holidays and introducing a three-month moratorium on any possessions.”

Dave Miller, client account manager at Spicerhaart Corporate Sales, said “The modest rise in arrears from Q4, an increase of just over 2%, can be attributed to the early impact of Covid-19, as homeowners’ income began to be affected by a fall-off in economic activity.”

“As UK Finance themselves point out, mortgage payment holidays were introduced shortly after this, and this should enable most borrowers to avoid getting into serious difficulties. The Government’s furlough scheme will also be of benefit in this respect.”

“There remains a serious issue for the more than 22,000 homeowners with arrears of 10% of their mortgage balance or more – a number that had been gradually falling before Covid-19 struck but still highly significant for the individuals and families involved. Although they will benefit in the short run from the cessation of possessions activity, the longer it goes on, the worse their position becomes.”

“Most of those borrowers are unlikely to be in a better position to address those arrears after the payment holiday is ended, and both lenders and the Government need to think through what the best approach is to helping people in that situation.”