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

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.”

Tony Hall, Saffron Building Society's mortgage sales head, told FTAdviser "it is inevitable that the situation will worsen as support tails off". He added: "Those borrowers struggling now will continue to struggle, and may see their ability to services mortgage repayments fall even further back as the cost of living rises continue to bite."

 Of the 76,270 homeowner mortgages in arrears as of June, 35 per cent were in early arrears - that is, those with up to 5 per cent of their balance in arrears.

This marks a decrease of 5 per cent compared to the first quarter of 2021. The number of mortgage arrear cases in Q2 2021 remains lower than the number of cases before the Covid-19 pandemic began.

UK Finance said the winding down of the job retention scheme by the end of September 2021 may have an impact on this decline. “However, as lenders continue to offer forbearance, we anticipate that the early arrears will increase at a gradual pace as the economic impacts of the pandemic continue to unfold,” the trade body concluded.

Despite the overall number of arrears being at record lows, the data showed there were 6,020 buy-to-let mortgages in arrears of 2.5 per cent or more in June - an increase of 50 on the previous quarter. 

When it comes to repossession, 210 homeowner mortgaged properties and 230 buy-to-let mortgaged properties were taken into possession between April and June - marking 90 more possessions compared to the first quarter of 2021.

Some lenders aren't so sure of an uptick in mortgage arrears. Jeremy Duncombe, managing director of Accord Mortgages, told FTAdviser: “As many people who took payment holidays as a precautionary measure went back to paying in full at the first opportunity, we don’t expect to see any increase of significance in arrears and possessions.

“We will continue to work with any borrowers who feel they may have difficulty repaying their mortgage and encourage anyone concerned about their ability to repay to contact us at the earliest opportunity so we can provide appropriate support.”

ruby.hinchliffe@ft.com