Mortgages 

Mortgage write-offs lowest since pre-credit crunch

Mortgage write-offs lowest since pre-credit crunch

Mortgage write-offs have dropped to their lowest level since before the financial crisis due to a robust property market and positive default record, according to property platform Lendy.

Bank of England data showed UK lenders wrote off just £72m of residential loans in 2016 to 2017 – 79 per cent less than the £348m that was written off in 2015 to 2016.

Lendy stated the fall in the value of residential loan defaults reflected the relative stability of the UK property market despite Brexit.

The large amounts of equity held within the average residential mortgage had also allowed lenders to recover more funds in the event of a default, Lendy stated.

Recent UK Finance data showed mortgage arrears and repossessions are close to all-time lows, despite a slight rise in the latter at the end of the third quarter.

While the Bank of England recently increased the base rate from 0.25 per cent to 0.5 per cent, many commentators do not expect it will have a huge impact on the market – although some have forecast a slight increase in buy-to-let arrears.

Liam Brooke, co-founder of Lendy, said: “Low interest rates have meant that bad debt in the residential market is close to all-time lows.

“However, investors can’t afford to take their eye off the ball now rates are starting to be pushed back up. Property will remain a sound investment, but portfolio risk must be managed effectively.

“Spreading risk across multiple properties and ensuring that loan-to-value ratios are sensible are vital safeguards. That’s where investing via peer-to-peer can help, enabling investors to diversify their property portfolios across a large number of investments with ease.

"Traditional property investing via buy-to-let forces investors to put all their eggs in one basket."

Alex Reynolds, IFA at London-based Advies Private Clients, said the figures were not surprising and he expected repossessions to begin to increase from their current lows.

He said: “Interest rates have been low for a long time, so [write-offs] should have been lowering each year since 2008. The fact that interest rates have stayed low has meant if you couldn't afford something in the past few years, you would never be able to afford it.

“Rates have gone up a bit – is more to come any time soon? You have to bear that in mind as well. The economy has been relatively stable, but we have not had a lot of wage inflation at all, which is the concern moving forward.

“I suspect we are at the lower end of repossessions and they will most likely increase from here on, but not by much until interest rates increase a little bit. 

“People have not been missing payments; they are much more aware of credit, and lenders are now allowing product transfers, which means you are not a mortgage prisoner on a variable rate.

"People are more likely to seek advice from brokers, which is keeping their rates low as well.”

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