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Mortgage arrears fall but financial pressures mount

Written by: Anna Sagar
Mortgage arrears fell in the second quarter of this year but there could be “early signs” of increased pressure from the rising cost of living.

There were 74,540 homeowner mortgages in arrears at the end of June – defined as 2.5% or more of the outstanding balance – according to the latest figures from UK Finance.

The trade body said that this was a reduction of around 200 homeowner mortgages compared to the previous quarter and 10% fewer than the same period last year.

Around 25,160 homeowner mortgages were in early arrears – 2.5 to 5% of the outstanding balance. This is up 1% on the previous quarter but is down 14% year-on-year.

UK Finance explained that early arrears were still “substantially lower” than those recorded pre-pandemic, but the latest figures showed “early signs of pressure” on household finances because of the increasing cost of living. It urged customers experiencing financial difficulty to contact their lender early on.

The report also found there were 28,840 homeowner mortgages with 10% or more of the outstanding balance in arrears. This is 510 fewer than the previous quarter.

Further, 5,640 buy-to-let mortgages were in arrears of 2.5% or more, which is 4% lower than the prior quarter and 10% lower than the same period last year.

Buy-to-let possessions fall but uptick in homeowner possessions

The report revealed there were 630 homeowner mortgaged properties and 350 buy-to-let mortgaged properties  taken into possession in Q2 2022, but the total number was “unchanged” from the first three months of the year.

In Q1, there were 600 homeowner possessions and 380 buy-to-let possessions, coming to 980 for both quarters.

Buy-to-let mortgage possessions were down 8% on Q1, and homeowner mortgage possessions rose by 5% compared to Q1.

In absolute terms, there were 530 more possessions compared to last year, but it was half the number seen in Q2 2019.

UK Finance said due to the possessions moratorium introduced during the pandemic which was lifted in April, customers in “long-term financial difficulty” and “unable to recover” were progressing to repossession of sale.

It added that year-on-year comparisons for possessions to 2021 were not fair due to “greatly surprised activity” in Q2 last year as courts and industry slowly resumed activity. Therefore, possessions now are “almost exclusively historic cases” that would have taken place in 2020 and 2021.

Action needed to help financially struggling borrowers

Emma Hollingworth, distribution director at MPowered Mortgages, said that while there had been a slight rise in possessions these were “still some way from hitting pre-Covid levels”, which were already low.

She added: “Whilst number remain low, it is important to note that some borrowers may be facing financial difficulty at this time, due in part to the ongoing cost-of-living crisis, and lenders play a vital role in supporting customers in these situations. Part of this is ensuring that affordability checks are carried out accurately and efficiently as part of the mortgage application process.”

Richard Pike, Phoebus Software’s sales and marketing director, added that although the headline figure showed a fall in arrears, the underlying data indicated to a shift as increased pressure from rising interest rates and inflation starts to be felt.

He pointed to the rise in homeowner possession, up 5% on Q1, as an “early indicator of things to come”.

Pike said: “The prediction that household energy bills are likely to average £350 per month by January next year is something that, added to the rising cost of mortgages, will put immense pressure on many households.

“Now is the time for borrowers and lenders to be talking to each other and looking at ways to try to manage potential arrears or defaults. It’s not a terrible picture at the moment, but unfortunately there will be some that find themselves in a difficult position over the next six to 12 months, unless things change dramatically.”

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