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Mortgage arrears continue to fall, but cost of living squeeze could bite this year

Christina Hoghton
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Christina Hoghton

Experts predict that arrears will start to rise over the course of 2022

Borrowers in mortgage arrears continued to trend down in the last quarter of last year, despite select government support schemes coming to an end in September.

According to the latest figures from UK Finance, around 79,620 homeowner mortgages were in arrears of 2.5 per cent or more of the outstanding balance by 31 December, which is five per cent fewer than the same period a year earlier.

This amounted to a reduction of 750 homeowner mortgages in arrears compared with the previous quarter, even though the government’s Coronavirus Job Retention Scheme wound up in September.

A closer look at the data showed 26,850 homeowner mortgages were in early arrears, meaning those with between 2.5 and 5 per cent of their balance in arrears. This is a decrease of two per cent on Q3 of 2021 and 14 per cent fewer than the same period in 2020.

More than 30,000 homeowner mortgages had more significant arrears of at least 10 per cent of their outstanding balance. This was 350 more than during the third quarter, although the rate of increase has slowed.

UK Finance, which represents about 300 firms across the banking and finance industry, said customers who were in relatively deep arrears before the Covid-19 pandemic probably took advantage of the six-month deferral scheme and other forms of support.

Buy-to-let arrears grow and possessions expected to grow

On the buy-to-let (BTL) front, 6,010 BTL mortgages were in arrears of 2.5 per cent or more of the outstanding balance by the end of 2021, which is two per cent increase compared to Q3 previous quarter but one per cent lower than the same period in 2020.

UK Finance said 390 homeowner-mortgaged properties and 320 BTL-mortgaged sites were taken into possession in the final quarter of last year.

The voluntary possessions moratorium ended on 4 January 2022, and UK Finance said it expected possessions to slowly rise as the backlog of cases works through the court system.

Possessions also fell in the final three months of 2021, thanks in part to a moratorium on possessions over the holiday period.

Eric Leenders, managing director of personal finance at UK Finance, said that it was encouraging to see that arrears had remained low after two years of economic and social upheaval and the removal of government support at the end of September.

He said: “The industry moratorium in December ensured that possessions remained suppressed through the fourth quarter. However, there remains a material backlog of possessions cases, dating back to before the pandemic, which will be resolved through this year. This will see possessions increase gradually through 2022 as this process is managed.”

Looking ahead, he added that rising inflation and planned increases in National Insurance contribution would were “likely to squeeze household budgets through this year” and would lead to “upward pressure” on arrears numbers.

He added that further bank rate rises would led to heightened mortgage payments for some, but said most borrowers were on fixed rates and would not be affected.

He said the trade group encouraged anyone falling behind in payments to contact their loan provider to discuss available options.