This means arrears accounted for 0.84 per cent of outstanding mortgage balances at the end of last year, equivalent to £13.5bn, according to data published by the Financial Conduct Authority and the Prudential Regulatory Authority today (March 8).
Experts put the dip down to “rock bottom” interest rates which only began to rise notably in the latter half of December after the Bank of England raised the base rate to 0.25 per cent.
“It’s encouraging that arrears levels have decreased to their lowest level since recording began in 2007,” said Andrew Montlake, managing director of the UK-wide mortgage broker Coreco.
“This is almost certainly a result of the fact [that] interest rates have been at rock bottom for so long and the jobs market has remained pretty robust, despite the pandemic.”
Unfortunately, Montlake said, arrears may rise in the months ahead as the Bank of England mulls raising interest rates to contain inflation, and as the cost of living squeeze “starts to bite”.
In February, the UK’s central bank raised the base rate again, this time to 0.5 per cent.
The Monetary Policy Committee voted 5-4 for this increase, while the four members voting against it asked for a bigger hike of 0.5 percentage points to 0.75 per cent.
Montlake concluded: “Unsurprisingly, there is a stampede to remortgage and lock into the lowest possible fixed rates at present, before rates inevitably increase further.”
Meanwhile, the value of new mortgage commitments - that is, lending agreed to be advanced in the coming months - fell to £77.3bn in Q4 2021.
This was 2 per cent less than the previous quarter, when commitments sat at £77.3bn, and 11.9 per cent less than the peak of £87.7bn in Q4 2020.
Karen Noye, mortgage expert at Quilter, said the latest mortgage lender and administrator statistics illustrate a market slowly returning to some sense of normality following “a period of near insanity”.
she said: “Throughout 2022, we are likely to see mortgage lending drop as more people are priced out of the market by the rising cost of living and put off by the current economic uncertainty.
“First-time buyers who were already struggling to take their first step on the property ladder will likely find it harder still as any deposit saved for a house will be continually eroded by inflation which will reduce their spending power.”
According to the FCA and PRA, the share of mortgages in 2021 Q4 with a loan-to-value ratio of more than 90 per cent was just 4.2 per cent.
“While a bit higher than the year prior, it is still a miniscule number when you consider those people taking out higher loan-to-value mortgages tend to be first-time buyers,” said Noye.
“This illustrates just how few first-time buyers have been able to get on the housing ladder, and it is only set to get worse given the current uncertainty we are living in.”
Gareth Lewis, commercial director of property lender MT Finance, agreed the FCA and PRA data suggested “a cooling of the market” in the fourth quarter of last year after a “frenetic pace” of activity over the previous 18 months.
“That pace was not sustainable and with double-digit house-price growth pricing first-time buyers even further out of the market, a more reasonable pace, similar to pre-pandemic levels, is welcome,” said Lewis.
“We are likely to see a further increase in base rate and with the bigger lenders starting to raise their mortgage rates, borrowing costs are set to edge up across the board.
“This may see people clamour to get deals done sooner rather than later, focusing minds on low rates while they are still available, and mean a continuation of these positive figures.”
Yesterday (March 7), the UK Finance’s Household Finance Review also showed house purchase activity “dropped sharply” in the last three months of 2021, down 36 per cent year-on-year.
The industry said this drop was "entirely expected" following the stamp duty land tax holiday during the pandemic.
ruby.hinchliffe@ft.com
