There were 77,410 homeowner mortgages in arrears in the fourth quarter of 2020, according to UK Finance – an increase of 2,560 on the previous quarter.

Within that total, there were 26,660 with more significant arrears (representing 10 per cent or more of the outstanding balance), an increase of 1,800 on the previous quarter.

This figure slowly increased throughout 2020 but from a low base, largely driven by customers who had several missed payments before the pandemic.

UK Finance said that ‘these borrowers may have made use of the full six months of payment deferrals and are most likely receiving or, in need of, the help available through lenders’ tailored forbearance support’.

There were a total of 5,840 buy-to-let mortgages in arrears in the fourth quarter of 2020, an increase of only 440 on the previous quarter.

Impact of payment pauses

Mortgage arrears levels in 2020 remain near to the historically low levels of the last three years, as a direct result of payment deferrals and other forms of lender support.

Since March 2020, mortgage lenders have been offering six-month payment deferrals to customers and buy-to-let landlords where Covid-19 has impacted their ability to meet their monthly mortgage payments.

At the end of December 2020 130,000 mortgage payment deferrals were in place, down from a peak of 1.8 million in June 2020. Approximately 8 in 10 have returned to making their mortgage payments.

Repossessions remain low

Only 140 homeowner mortgaged properties and 190 buy-to-let mortgaged properties were taken into possession in the fourth quarter of 2020, said UK Finance. Over the whole year, 2,660 mortgages were taken into possession.

The industry moratorium on involuntary possessions remains in place until 1 April 2021, 12 months after it began. The properties taken into possession last year were those where the customer requested the possession to go ahead or where the property was vacant.

Arrears and possessions will increase in 2021 driven by the backlog that did not occur in 2020 due to the possessions moratorium and payment pauses.

Eric Leenders, managing director of personal finance at UK Finance, said: “As Covid-19 continues to affect the economy, we anticipate there will be further increases in mortgage arrears during 2021.

“Lenders continue to help customers experiencing financial difficulties with a package of support for those who need it, including payment deferrals and tailored assistance. Additionally, the industry fully supports the moratorium on possessions which remains in place until 1 April 2021 to keep customers safe in their homes during national lockdowns. It is essential that customers who are concerned about their finances contact their lender early to discuss the options and support available to them.”