MortgagesAug 12 2021

Mortgage arrears at record low but payment holiday end sparks fears

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Mortgage arrears at record low but payment holiday end sparks fears
Photo by Alexandre Bringer from Pexels

Mortgage arrears remained at historic lows in the second quarter of 2021, according to trade body UK Finance’s latest data, but there are fears about the mortgage payment holiday which has just ended. 

Overall, 1,370 fewer mortgages were in arrears at the end of June compared to the end of March, with a total of 76,270 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance.

This is in large part down to the Financial Conduct Authority’s mortgage payment holiday, which was introduced in March 2020 so borrowers could defer mortgage payments by up to six months during the pandemic.

The payment holiday ended last month, having granted 2.9m mortgage payment deferrals whilst it was active. Advisers have told FTAdviser they did not see much, if any, demand for mortgage payment deferrals towards the tail end of the holiday.

Mark Harris, chief executive of mortgage broker SPF Private Clients, claimed he had seen some lenders - due to historically low arrears - looking to “reallocate funds back from the bad debts pot to new lending”.

But others in the industry are beginning to warn of the effects of the payment holiday ending.

“While it’s encouraging to see mortgage arrears remain close to historic lows, the picture could look very different in the coming months,” said Steve Seal, chief executive of Bluestone Mortgages.

“Mortgage payment holidays have now come to an end, and with furlough and the self-employment income support scheme set to end in September, there’s likely to be more homeowners who will struggle to keep up with mortgage repayments.”

While Seal acknowledged this “may only be short-term for some borrowers”, he added “it is something that could impact their credit profile in the long-run”. 

He continued: “As a result, many of these customers risk being turned away from high street lenders and may not know where else to turn. As an industry, it is our responsibility to support this cohort of customers which is only set to grow post-pandemic.”

Vikki Jefferies, propositions director at Primis Mortgage Network, said she hopes “lenders will continue to be proactive in order to avoid a sudden jump in arrears as we move into the second half of the year”.

She said: “The housing market has been a driving force behind the UK’s economic recovery from the coronavirus crisis, but it’s important to note that the long term impact of the pandemic may not yet be visible and there remain a number of borrowers who faced financial difficulty pre-pandemic who have continued to build up arrears through the crisis.”