The total number of mortgage holders in arrears continued to fall in the second quarter (Q2) of 2022, according to the latest statistics from UK Finance.
The trade body found that in absolute terms there were 530 more possessions in Q2 2022 compared with the same period last year, however the total for this quarter is approximately half the number seen in Q2 2019.
However, year-on-year comparisons for possessions look unusually large due to greatly suppressed activity in Q2 2021 as the courts and the industry slowly resumed activity following the end of the possession moratorium.
UK Finance said that possessions taking place now are, therefore, almost exclusively historic cases which would, under normal circumstances, have taken place over the course of 2020 and 2021 and now need to conclude in the customers’ best interests.
Some 630 homeowner mortgaged properties and 350 buy-to-let mortgaged properties were taken into possession in the second quarter of 2022.
The total number of possessions remains unchanged from the first three months of the year.
However, the number of buy-to-let mortgage possessions fell by 8%, while the number of homeowner mortgage possessions rose by 5%.
There were 5,640 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2022 – 4% fewer compared with the previous quarter and 10% down on the year.
Also within the total, there were 28,840 homeowner mortgages with more significant arrears (representing 10% or more of the outstanding balance), 510 fewer cases than the previous quarter.
Early arrears figures remain substantially lower than the numbers seen before the pandemic began.
However UK Finance said this is likely to reflect early signs of pressure on household finances as cost-of-living pressures began to weigh more heavily from April onwards.
There were 25,160 homeowner mortgages in early arrears (representing 2.5% to 5% of the outstanding balance), a 1% rise on the previous quarter.
This was the only segment that saw an increase in arrears numbers this quarter, but the number remains 14% fewer than the same period in 2021.
Overall, there were 74,540 homeowner mortgages in arrears at the end of June 2022 (defined as representing 2.5% or more of the outstanding balance), a reduction of approximately 200 homeowner mortgages compared with the previous quarter.
This is 10% fewer than in the same period a year prior.
Reaction
Emma Hollingworth, distribution director at MPowered Mortgages:
“During Q2, arrears have continued to fall. While there has been a slight rise in possessions, these figures are still some way from hitting pre-Covid levels, which were themselves low.
“Whilst number remain low, it is important to note that some borrowers may be facing financial difficulty at this time, due in part to the ongoing cost of living crisis, and lenders play a vital role in supporting customers in these situations.
“Part of this is ensuring that affordability checks are carried out accurately and efficiently as part of the mortgage application process. At MPowered Mortgages, we use data-driven innovation and targeted AI to help increase automation, including gathering all necessary information in one place allowing for quick and informed decisions to be made.”
Richard Pike, Phoebus Software sales and marketing director:
“Although the headline figure from UK Finance today shows a fall in arrears in Q2, the underlying data is pointing to a shift as the pressures from rising interest rates and inflation take hold. The rise in homeowner possessions, of 5% on Q1, is perhaps an early indicator of things to come.
“The prediction that household energy bills are likely to average £350 per month by January next year is something that, added to the rising cost of mortgages, will put immense pressure on many households.
“Now is the time for borrowers and lenders to be talking to each other and looking at ways to try to manage potential arrears or defaults. It’s not a terrible picture at the moment, but unfortunately there will be some that find themselves in a difficult position over the next six to 12 months, unless things change dramatically.
“That said, lenders should now be investing in ensuring their standard arrears procedures managed on servicing platforms are as automated as possible so that cases, that need to be managed by exception, can be given the time and effort required to ensure the right borrower outcomes.”
Vikki Jefferies, proposition director, PRIMIS:
“Today’s data shows a further decrease in arrears in Q2 and figures still remain lower than pre-pandemic levels.
“We’ve also seen a small rise in the number of possessions, which has grown throughout the year as courts continue to work through the backlog of cases accumulated throughout the pandemic. As a result, it’s likely that these figures reflect borrowers in financial difficulty before the onset of Covid-19.
“However, it’s too early to note the effects that the rising cost of living and increased base rate will have on homeowners, which will surely have a real impact, particularly once the next energy price cap change comes into play later in the year.
“Amidst an increasingly complex market, advisers now have a real responsibility to step-up and support clients with tailored financial advice to mitigate the risk of falling into arrears further down the line.”
