"With inflation and interest rates rising it is only right to expect that the number of borrowers in arrears is going to increase."
The number of homeowner mortgages in arrears remained flat in Q3, however industry experts have warned that with inflation and interest rates rising the number of borrowers in arrears is going to increase.
The latest figures from UK Finance show that there were 74,440 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in Q3, 1% fewer than in the previous quarter.
Within the total, there were 28,910 homeowner mortgages with more significant arrears (representing 10% or more of the outstanding balance) - unchanged from the previous quarter.
There were 5,760 buy-to-let mortgages in arrears of 2.5% or more in Q3, 2% greater than in Q2. Within this total, there were 1,780 buy-to-let mortgages with more significant arrears, 1% fewer than in the previous quarter.
700 homeowner mortgaged properties were taken into possession in Q3, 15% greater than in the previous quarter, and 390 buy-to-let mortgaged properties were taken into possession, an 11% rise.
Richard Pike, chief sales and marketing officer at Phoebus Software, said: “Although the figures show very little change from the previous quarter the underlying number with more significant arrears is the figure that lenders should be watching. Forbearance during, and since, Covid has meant that lenders have had to change their processes and as such allow more significant arrears to build. With inflation and interest rates rising it is only right to expect that the number of borrowers in arrears is going to increase.
“Unfortunately, during the period of forbearance lenders didn’t have the need for large teams to deal with arrears. As things change it will be vital for lenders to ready themselves and get the infrastructure in place to deal with an inevitable rise in arrears. It will also be incumbent on lenders to manage borrowers and ensure that arrears don’t build up to an unhealthy level, otherwise repossessions too may rise.”
Karen Noye, mortgage expert at Quilter, commented: “Mortgage possession actions i.e., the process of a lender repossessing someone’s home due to missed payments has started to increase at a significant rate although levels still remain below pre-covid levels.
“Compared to the same quarter in 2021, mortgage possession claims increased from 2,832 to 3,680 (30%), orders from 1,229 to 2,491 (103%), warrants from 947 to 2,437 (157%) and repossessions by county court bailiffs increased from 390 to 744 (91%).
“A claim, order, warrant and repossessions by country court bailiffs are all steps in the process which concludes with a home being repossessed.
“In the face of the pandemic, the FCA put a stop to all repossession proceedings from March to September 2020 during which time no repossessions took place. After that the FCA advised mortgage lenders not to commence or continue possession proceedings until April 2021 (unless there were special circumstances). As a result, there were only 10 repossessions from April 2020 to March 2021 (Q2 2020 to Q1 2021), and 744 in July to September 2022, up 91% compared to the same quarter in 2021.
“Repossessions spiked after the financial crisis but since then due to lenders taking a more proactive approach to helping struggling borrowers and also low interest rates the levels of repossessions have dramatically decreased.
“However, in the face of the cost-of-living crisis sadly the numbers of repossessions is starting to climb again. Historically, periods of high interest rates has coincided with an uptick in the number of repossessions due to people’s monthly payments increasing to levels they can no longer pay. With high energy and food prices some people will start to struggle to heat their homes, eat and service their mortgage and this will lead to repossession."
