Mortgage arrears and possessions reach nine-year low
Published: 19 February 2015 | Author: Bernard Clarke
The number of properties taken into possession by lenders declined to 21,000 last year – 26% fewer than in 2013, and the lowest number since 2006.
Our data also showed that there were fewer mortgages in arrears at the end of last year than at any time since 2006. Just 1.05% of all borrowers were in arrears of at least 2.5% of the mortgage balance, down from 1.29% at the end of the preceding year. In numerical terms, that equated to 116,800 loans in arrears, down from 144,600 at the end of 2013.
Chart 1: Possessions, buy-to-let and owner occupied markets
With only around one mortgaged property in 600 being taken into possession last year, borrowers should be re-assured that, if they do fall behind with their repayments, lenders will work with them to try to resolve their problems. Seeking possession is only ever a last resort.
But even though this week’s inflation figures probably mean that the prospect of a rise in interest rates has receded further, no-one should ignore the fact that borrowing costs will rise at some stage.
Although there are rules in place to ensure lenders assess affordability carefully, they should not be a substitute for sensible borrowing. Borrowers need to look to the future, and consider carefully whether borrowing commitments taken on now will be affordable when rates rise.
Aside from higher interest rates, the other main cause of mortgage payment problems is the unexpected disruption of income as a result of unemployment. Both higher interest rates and unemployment are relatively benign threats at the moment, and this partly explains the current low levels of mortgage arrears and possessions.
Of the 21,000 properties taken into possession last year, 16,100 were owner-occupied and 4,900 held by buy-to-let borrowers.
Those numbers meant that the rate of possession of buy-to-let properties was almost twice as high as for owner-occupied ones, even though the rate of underlying arrears on buy-to-let lending remains lower. That should not be surprising, however, as lenders offer extended forbearance to owner-occupiers to help them get through periods of financial difficulty without losing their home.