Payment Deferrals Push Mortgage Arrears Close to ‘Historically Low’ Levels

Mortgage arrears are close to 'historically low levels" thanks to payment deferral plans and special support offered by lenders as a result of the pandemic, according to a new analysis from UK Finance.

At the end of 2021s first financial quarter (31st March), there were 77,640 mortgages with arrears of more than 2.5% across the UK- just 230 more than the lowest number ever recorded in 2019.

Commenting on the organisation's findings, the chief lending officer at Masthaven Bank, David Kennedy, said:

The low levels of mortgage arrears in the first quarter of this year reflect the fact that the industry has primarily risen to the challenge presented by the pandemic and implemented the necessary measures to protect most affected customers.

Payment deferrals from lenders, combined with government schemes such as furlough and CBILS, have served to support customers and the market. It's important to note, however, that the long-term impact of the pandemic may not be yet visible.

Within this total, there are 28,100 homeowners in so-called 'early arrears', worth less than 5% of the mortgage.

This is slightly less than the same period last year when the number of homeowners in early arrears increased slightly as people started to feel the first financial effects of the pandemic.

However, the number of borrowers in early arrears declined 'steadily' over 2020 as payment referrals were introduced- allowing people to make up the late payments.

The Financial Conduct Authority (FCA) obliged lenders to withhold from legal action on late payments until November 2020, and the banking industry extended a pause on repossessions until the middle of January in line with government guidance on a 'winter truce'.

However, together with those in early arrears, UK Finance found that there are 27,290 households with significant arrears (more than 10%); and that more households can expect to fall behind on payments over 2021 as financial support for the pandemic is withdrawn.

Managing Director of Personal Finance at UK Finance Eric Leenders said:

With the economic impact of Covid-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021. Any customer who is concerned about their finances should contact their lender early to discuss the options and tailored support available to them.

A freeze on bailiff action until 1st April helped keep repossessions low during the period analysed (which ended on 31st March), with only 290 repossessions between January - March.

Under rules at the time, repossessions were only permitted in 'exceptional circumstances, such as where a tenant volunteered their property to the lender.

However, UK Finance noted that a 'backlog' of cases from before the ban on bailiff activity means that there is likely to be an uptick in repossession activity even though this is used as a 'last resort.