"Once important measures such as furlough run dry, then it’s crucial that customers aren’t left rudderless."
From March 2020 - 31 March 2021, lenders offered payment deferrals of up to six months to customers and buy-to-let landlords where Covid-19 had impacted their ability to meet their monthly mortgage payments, with almost 2.9 million granted while the scheme was active.
There was a small increase of 230 mortgages in arrears compared to the previous quarter, with a total of 77,640 homeowner mortgages in arrears of 2.5% or more of the outstanding balance.
Within the total, there were 28,100 homeowner mortgages in early arrears (those between 2.5 and 5% of balance in arrears), a decrease of 1% on the previous quarter.
Over the same period in 2020, the number of mortgages in early arrears increased modestly, which UK Finance says is largely due to early payment difficulties prior to payment deferrals being introduced. Since then, payment deferrals allowed borrowers who had found themselves in early arrears to pay these off and prevented additional borrowers from going into arrears. This resulted in an overall decline in early homeowner arrears over the course of 2020, with the number of cases in Q1 2021 remaining lower than the number of cases before the Covid-19 pandemic began.
Within the overall total, there were 27,280 homeowner mortgages with more significant arrears (representing 10% or more of the outstanding balance), an increase of 620 on the previous quarter. This figure has slowly increased since Q1 2020 but from a low base. UK Finance says these increases are largely driven by customers who had several missed payments before the pandemic. These borrowers may have made use of the full six months of payment deferrals and are most likely receiving or, in need of, the help available through lenders’ tailored forbearance support.
There were a total of 5,970 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2021, a small increase of 130 on the previous quarter. The continued small increases in buy-to-let arrears from a low base are again due to the Covid-19 pandemic.
Only 190 homeowner mortgaged properties and 180 buy-to-let mortgaged properties were taken into possession in the first quarter of 2021. Although FCA guidance allowed firms to recommence litigation activity from November 2020, lenders voluntarily committed to pause possessions in line with the Government’s 'winter truce' from 11 December 2020 to 11 January 2021. There were 40 more possession cases in Q1 2021 than the quarter before, where the customer requested the possession to go ahead or where the property was vacant. Possessions will remain low until government restrictions on Bailiff activity ends, and are then expected to increase due to the backlog of cases that did not occur in 2020; these cases will have been in train before the pandemic began.
Eric Leenders, managing director of personal finance at UK Finance, said: "While there was a slight rise in total arrears in Q1 2021 compared to the historic low levels seen before the pandemic, the additional support from lenders has helped many mortgage customers stay out of arrears.
“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."
David Kennedy, chief lending officer at Masthaven Bank, commented: “The low levels of mortgage arrears in the first quarter of this year reflect the fact that the industry has largely risen to the challenge presented by the pandemic and implemented the necessary measures to protect customers who have been most affected. 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 yet visible.
“The various initiatives put in place last year to bolster the economy, have certainly boosted the housing market and injected it with vitality, but the government has clearly signalled that these won’t go on forever. Once important measures such as furlough run dry, then it’s crucial that customers aren’t left rudderless. For a large number of borrowers the pandemic may be the first time they have seen such a serious hit to their finances and some may be embarrassed to ask for help or guidance. Lenders need to be ready to be proactive to ensure there is no spike in arrears later this year.
“Making regular contact with vulnerable customers now, will help identify and prevent problems down the line and lenders need to ensure that they are educating their customers on the support that’s available to them. Specialist lenders have always prided themselves on being able to provide a personal touch and a more individual approach to their customers, which has been borne out over the last year. The industry may have passed the initial tests posed by the pandemic, but there will certainly still be challenges to come.”
