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Mortgage arrears at historic low

Mortgage arrears and possessions continued to fall in the second quarter of this year, as UK Finance reported levels were at a historic low.

But there have been warnings the recent increase in the base rate of interest could lead to more people struggling with their mortgage.

The latest mortgage arrears and possessions update from UK Finance showed 76,740 homeowner mortgages were in arrears of 2.5 per cent or more of the outstanding balance – 8 per cent fewer than the same point last year.

Within the figures for the second quarter of this year, 23,190 mortgages were in arrears representing 10 per cent or more of the outstanding balance and there were 4,440 buy-to-let mortgages in arrears of 2.5 per cent or more – both reductions on last year’s levels.

Possession levels also dropped, with 1,060 homeowner mortgaged properties and 520 buy-to-let mortgaged properties repossessed in the second quarter of this year – down 5 per cent and 24 per cent respectively on the same quarter in 2017.

There was a slight increase in buy-to-let mortgages in arrears of 10 per cent or more, with 1,080 in quarter two – a 2 per cent growth from the same point a year earlier.

Jackie Bennett, director of mortgages at UK Finance, said the figures were at an all-time historic low since the trade association first started collecting the data more than 24 years ago.

But Ms Bennett warned last week’s base rate rise, coupled with the disappointing uptake of the support for mortgage interest loan, could see arrears creeping up in the coming months.

She said: “With well over 90 per cent of new loans taken out at fixed rates, most recent borrowers will see no immediate impact from the Bank rate increase.

“However, anyone with concerns about managing their mortgage should contact their lender to discuss the advice and support available -repossession is always a last resort.”

Jonathan Harris, director of mortgage broker Anderson Harris, agreed the latest figures were encouraging but said there was no room for complacency – particularly with interest rates rising this month.

He said: “While possessions may be declining, this can change and borrowers need to be prepared – many are opting for fixed-rate mortgages to help with budgeting, which makes a lot of sense, particularly if there are further rate rises.

“We suspect that when it comes to their finances there are many people who do not have a buffer to tide them over should they get into difficulty and it is vital that borrowers keep their lender in the loop if they are struggling to pay their mortgage.”

Mr Harris said part of the reason why arrears levels are low is that lenders are being flexible and showing forbearance, but he suggested it was much easier and less stressful to come up with solutions early on than further down the line when options may be much more limited.

Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said the figures reflected both the considerable efforts made by lenders to treat borrowers in difficulty with forbearance, and the tighter affordability rules introduced by the financial services regulator – which has prevented borrowers from over-stretching themselves and getting into difficulty.

Source: FT Adviser