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Arrears and possessions now at lowest since 2008


Published: 18 November 2014 | Author: Bernard Clarke

Mortgage arrears and possessions fell again in the third quarter of the year, continuing a period of almost unbroken decline since 2008.

A combination of persistently low interest rates, intelligent communication and forbearance by lenders, and the resolve of borrowers to prioritise mortgage payments have contributed to a long period of declining mortgage arrears and possessions.

Predictions of when the Bank of England will raise its base rate continue to ebb and flow depending on the latest economic data. But even if a rise does not come until later in 2015, as many commentators now expect, we would urge against complacency and encourage borrowers to plan ahead for higher borrowing costs.

Encouragingly, recent research suggests that many households are heeding the message and preparing for higher interest rates. We therefore expect any increase in payment difficulties to be relatively muted when the cost of borrowing does begin to rise. 

A key activity for lenders now is to consider how best to support borrowers in planning ahead for a time when debt servicing costs are higher than they are now.

The Bank of England has sought to re-assure borrowers by saying that the base rate will rise in a series of ‘baby steps’ and is likely to settle at a lower level than before the financial crisis. The Bank has also said that it will assess carefully the impact of higher costs on household finances, and slow or reverse rate increases if necessary.

Our data showed that, at the end of the third quarter of this year, the number of mortgages with arrears equivalent to 2.5% of more of the mortgage balance stood at 125,100, or 1.12% outstanding loans. That compared to 131,400 (or 1.18%) at the end of the preceding quarter and 149,400 (1.33%) at the end of the third quarter last year.

The proportion of mortgages in arrears is now at its lowest since the first quarter of 2008.

Chart One: Arrears on mortgages, by percentage of total balance in arrears

13.11.2014 - arrears on mortgages by percentage of total balance in arrears

Source: CML Research

During the third quarter, lenders took into possession 5,000 properties (or 0.04% of those with a mortgage). That was the lowest quarterly number and proportion since quarterly records began in 2008. The total compares with 5,400 properties (0.05%) in the second quarter of 2014, and 7,200 properties (0.06%) in the same period last year.

Chart Two: Possessions, buy-to-let and owner occupied markets

13.11.2014 - possessions buy-to-let and owner occupied markets

Source: CML Research

Within the overall totals, there was a decline in arrears and possessions in both the owner-occupied and buy-to-let sections of the market. Of the 5,000 cases of possession, 1,100 were in the buy-to-let sector, representing a slightly higher possession rate of 0.07%, compared to 0.04% of owner-occupied properties.