Mortgage arrears have stayed historically low in the second quarter of the year due to the impact of payment deferral and tailored forbearance, but a twin-track market is emerging.

According to UK Finance, Covid-19 related support has helped some customers stay out of arrears but those who were struggling before the pandemic have continued to build up arrears.

Mortgages in arrears of 2.5 per cent or more came to 76,270 in the second quarter, a fall of 1,370 from the prior quarter.

Within those, 26,560 homeowner mortgages were in early arrears, between 2.5 and five per cent of balance, which is down five per cent on the previous quarter and lower than the number cases before the pandemic began

In its report UK Finance noted that early arrears had increased slightly in the second quarter due to payment difficulties, but the introduction of deferrals in March last year lead to an overall decline over the course of 2020.

It warned that the rolling back of the Job Retention Scheme in September could impact the steady decline, and said it expected early arrears to “increase at a gradual pace”.

Around 27,910 homeowner mortgages were in arrears of 10 per cent of more of the outstanding balance, up by 630 on the previous quarter.

According to UK Finance, this figure has steadily risen since the Q1 driven by “customers with complex circumstances” who had missed payments before the pandemic.

Additionally, 6,020 buy-to-let mortgages were in arrears of 2.5 per cent or more of the outstanding balance, up by 50 on the prior quarter.

Overall, 2.9 million people had been granted a payment deferral whilst the government scheme was active and said lenders will still be offering tailored forbearance and support to those who need further assistance.

Some 210 homeowner mortgaged properties and 230 buy-to-let properties were taken into possession in the second quarter, an overall increase of 90 from the previous quarter.

UK Finance said it predicted a slow rise in possessions throughout the year following the lifting of the Possessions Moratorium and eviction restrictions as the backlog of cases unwind.

Bluestone Mortgages’ chief executive Steve Seal said it was “encouraging” that mortgage arrears were close to historic lows, but warned the “picture could look very different in the coming months”.

He said: “Mortgage payment holidays have now come to an end, and with furlough and the Self-Employment Income Support Scheme set to end in September, there’s likely to be more homeowners who will struggle to keep up with mortgage repayments.

“This may only be short-term for some borrowers, however it is something that could impact their credit profile in the long-run. As a result, many of these customers risk being turned away from high street lenders and may not know where else to turn. This is where the specialist lending market has an increasingly important role to play.”

He continued that it was the industry’s responsibility to support this cohort of customers, which was set to grow, and point them to the options available to them.

Vikki Jefferies, Primis’ proposition director, said the sustained levels of low arrears showed that the industry, along with schemes like furlough and payment deferrals, had managed to protect customers impacted by the pandemic.

However, she warned: “As these support schemes come to an end it will be vital to provide proactive and sustained support for brokers.

“The housing market has been a driving force behind the UK’s economic recovery from the coronavirus crisis, but it’s important to note that the long-term impact of the pandemic may not yet be visible and there remain a number of borrowers who faced financial difficulty pre-pandemic who have continued to build up arrears through the crisis.”

Jefferies said she hoped lenders would continue to be proactive to avoid a jump in arrears in the second half of the year.