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Mortgage arrears fall in Q2 but early signs of increased cost of living pressure – UK Finance

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  • 11/08/2022
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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.

According to the latest figures from UK Finance, there were 74,540 homeowner mortgages in arrears at the end of June. This is defined at 2.5 per cent or more of the outstanding balance.

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

Around 25,160 homeowner mortgages were in early arrears, which is 2.5 to five per cent of the outstanding balance. This is up one per cent on the previous quarter but is down 14 per cent year-on-year.

UK Finance explained that early arrears were still “substantially lower” than those 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.

The report also found that there were 28,840 homeowner mortgages with 10 per cent or more of the outstanding balance in arrears.

This is 510 fewer than the previous quarter.

The report noted that 5,640 buy-to-let mortgages were in arrears of 2.5 per cent or more, which is four per cent lower than the prior quarter and 10 per cent lower than the same period last year.

Buy-to-let possessions fall but homeowner possessions rise slightly

The report found that 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 eight per cent on Q1, and homeowner mortgage possessions rose by five per cent 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 that because the possessions moratorium introduced during the pandemic had lifted in April, customers in “long-term financial difficulty” and “unable to recover” were progressing to repossession or 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.

Lenders should take action now 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. At MPowered Mortgages, we use data-driven innovation and targeted AI to help increase automation, including gathering all necessary information in one place allowing for quick and informed decisions to be made.”

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 rise in homeowner possession, up five per cent on Q1, as “early indicator of things to come”.

Pike continued: “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.”

He added that lenders should investing in ensuring their “standard arrears procedures” on servicing platforms were as “automated as possible” so cases that need to be managed can be “given the time and effort required to ensure the right borrower outcomes”.

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