"As Covid-19 continues to affect the economy, we anticipate there will be further increases in mortgage arrears during 2021."
However, UK Finance anticipates that the number of early arrears will increase further once the furlough scheme ends and the economic impacts of the pandemic are realised.
There were a total of 77,410 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2020, an increase of 2,560 on the previous quarter. Within the total, there were 28,400 homeowner mortgages in early arrears (those between 2.5 and 5% of balance in arrears), an increase of only 2% on the previous quarter.
Earlier in 2020, the number of mortgages in early arrears increased in Q1 2020, largely due to early payment difficulties prior to payment deferrals being introduced. However, since then, payment deferrals has allowed borrowers who had found themselves in early arrears to pay these off and prevented additional borrowers from going into arrears. This resulted in a decline in early homeowner arrears in the following two quarters of 2020, larger than the increase seen in Q1. While the number of these early arrears has increased slightly by 490 cases in Q4 2020, this is lower than the number of cases before the Covid-19 pandemic began.
Within the total, there were 26,660 homeowner mortgages with more significant arrears (representing 10% or more of the outstanding balance), an increase of 1,800 on the previous quarter. This figure has slowly increased throughout 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.
140 homeowner mortgaged properties and 190 buy-to-let mortgaged properties were taken into possession in the fourth quarter of 2020. 2,660 mortgages were taken into possession in total in 2020. The industry moratorium on involuntary possessions remains in place until 1 April 2021, 12 months after it began. Therefore, the low possessions numbers in 2020 for the most part reflect cases where the customer requested the possession to go ahead or where the property was vacant. Possessions will increase in 2021 driven by the backlog that did not occur in 2020 due to the possessions moratorium, almost all of which will have been in train before the pandemic.
UK Finance data shows that 130,000 mortgage payment deferrals were in place at the end of December 2020, broadly stable since late October but down from a peak of 1.8 million in June 2020. Approximately 8 in 10 have returned to making their mortgage payments.
Eric Leenders, managing director of personal finance at UK Finance, said: "Whilst the data shows a relatively small increase in the total number of all arrears from the historic low levels seen in 2019, the support available from lenders has meant those who were not in financial difficulty at the beginning of the pandemic have remained out of arrears. Despite the modest uptick, the total number of customers in the early stages of arrears in Q4 2020 remains below the level seen at the end of 2019.
“As Covid-19 continues to affect the economy, we anticipate there will be further increases in mortgage arrears during 2021. Lenders continue to help customers experiencing financial difficulties with a package of support for those who need it, including payment deferrals and tailored assistance. Additionally, the industry fully supports the moratorium on possessions which remains in place until 1 April 2021 to keep customers safe in their homes during national lockdowns. It is essential that customers who are concerned about their finances contact their lender early to discuss the options and support available to them."
Steve Seal, managing director at Bluestone Mortgages, added: “While it is encouraging to see that the number of mortgages in arrears remains low, the picture could look very different once government forbearance measures for consumers end. Mortgage payment holidays will continue to support thousands of homeowners over the coming months, so it’s likely that we won’t see the full extent of the Covid-19 crisis on mortgage arrears until the second half of 2021 at the earliest.
“After all, it’s clear that some homeowners will struggle to keep up with their mortgage repayments once the government’s support packages end. This may only be a short-term problem for some, yet it is something that could drastically affect their credit profile in the long-run and subsequently, their eligibility for a remortgage on the high street. Many of these borrowers simply won’t know what their options are, however, which is where the specialist lending market will play a key role.
“In the months to come, it will be crucial that specialist lenders and advisers gear up for the longer-term implications of the crisis. This will ensure that both sides are equipped to support borrowers who may otherwise be disenfranchised by mainstream lenders – a cohort which is expected to grow post-crisis – and that more “non-vanilla” customers are able to secure the financing they need in future.”
