Mortgage arrears continue to fall to near historic lows

Mortgage arrears continued to fall to near historic lows, with the government’s Coronavirus Job Retention Scheme remaining in place until September. according to the latest UK Finance statistics.

Possessions meanwhile have slightly risen in absolute terms, off a low base, as the courts work through a backlog of cases that built up during the possessions moratorium. These cases are predominantly those that had built up significant levels of arrears prior to the start of the pandemic.

From March 2020 to September 2021, the CJRS covered up to 80 per cent of the wages of employees who had been furloughed due to Covid-19, with reductions in the percentage paid during the final few months. The scheme covered 11.7 million employee jobs, preventing mass unemployment and supporting incomes amidst economic uncertainty. Additionally, nearly 3 million Covid-19 payment deferrals were granted by mortgage lenders between March 2020 and March 2021, providing borrowers with additional help in managing their household finances through the crisis. While both the CJRS and the payment deferral scheme have now ended, lenders continue to provide tailored forbearance and support to borrowers who need help meeting their mortgage payments.

This support has helped many customers to remain out of arrears, and allowed some others to pay down modest existing arrears balances. Overall, there was a reduction of 2400 mortgages in arrears compared with the previous quarter, with a total of 74,210 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance.

Within the total, there were 25,110 homeowner mortgages in early arrears (those between 2.5 and 5 per cent of balance in arrears), a decrease of 5 per cent on the previous quarter and 10 per cent fewer than the same period in 2020. Barring an initial uptick at the end of March 2020, these early arrears figures have remained lower than the number seen before the pandemic began. Looking ahead, with the end of Covid-specific support schemes, we expect lenders’ provision of tailored forbearance to customers in difficulty will moderate, but not prevent, increases in early arrears.

Also within the total, there were 27,980 homeowner mortgages with more significant arrears (representing 10 per cent or more of the outstanding balance), 70 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-scheme payment deferrals and are equally likely to be receiving (or in need of) further support through lenders’ tailored forbearance. Customers who are facing financial difficulty are encouraged to contact their lender early, as they stand by ready to help.

There were a total of 5,670 buy-to-let mortgages in arrears of 2.5 per cent or more of the outstanding balance in the third quarter of 2021 – a decrease of six per cent compared with the previous quarter.

There were 410 homeowner mortgaged properties and 320 buy-to-let mortgaged properties taken into possession in the third 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 – 1 April 2021, over which period no enforced possessions took place. In absolute terms, there were 290 more possessions cases compared with Q2 2021. The number of possessions is expected to gradually increase as the courts continue to work through the backlog of cases accumulated over the Moratorium period. These borrowers would have 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 “Mortgage arrears continued to fall to near historic lows during the third quarter of the year, with the furlough scheme and the previous mortgage payment deferral scheme supporting people and even enabling some to pay down existing arrears.”

“Following the end of the year-long moratorium on possessions in April 2021, there were a small number of possessions in Q3, however these reflected cases where people were already in financial difficulty before the pandemic. Possession is only ever a last resort after tailored support is exhausted and we expect to see a gradual increase in cases as the courts continue to process those which had been put on hold.”

“Lenders continue to provide tailored forbearance and support to borrowers who need help, and we encourage anyone experiencing financial difficulty to contact their finance provider as soon as possible to discuss options available.”