"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."
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.
UK Finance noted that year-on-year comparisons for possessions will 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. 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.
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.
Since the end of the possessions moratorium last April, more customers in long-term financial difficulty who are unable to recover are now progressing to repossession or sale, allowing them to realise any remaining equity and to seek more sustainable housing options.
The data shows that early arrears figures remain substantially lower than the numbers seen before the pandemic began. However, as signalled last quarter, this is likely to reflect early signs of pressure on household finances as cost-of-living pressures (including energy price rises and increased National Insurance contributions) 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.
Richard Pike, sales and marketing director at Phoebus Software, said: “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 twelve 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."
Tahina Akther, barrister and co-founder at Wildcat Law, commented: "Unfortunately this is the tip of a very large iceberg. We are seeing a significant number of early stage cases. Many of these will no doubt ultimately end in repossessions. To put this in perspective, we are a long way off the peaks of the early 1990s but then we are barely getting started with this latest recession. Repossessions are always a last resort and are often a lengthy legal process. This means the data we are seeing reflects the situation of many months ago. In short, this is the Covid effect followed by the cost of living crisis. Many people have simply not recovered financially from COVID and hence there is no option available to lenders or the Courts but to repossess."
