Analysis: Mortgage arrears show modest rise, as 1.6 million homeowners take payment holidays

UK Finance statistics show that, in the first quarter of 2020, there were 72,380 homeowner mortgages in arrears of 2.5 percent or more of the outstanding balance. This is six percent fewer than in Q1 2019.

But in that total, there’s a significant amount of borrowers facing more severe financial difficulty. There were 22,050 homeowner mortgages with arrears of 10 percent or more.

The modest overall rise in arrears from Q4, of just over two percent, can be attributed to the early impact of Covid-19, as homeowners’ income began to be affected by a fall in economic activity.

In an article giving some context to the marginal arrears rise, Callum Bilbe, analyst at UK Finance, said: “While we did see a modest increase in arrears from Q4 2019 to Q1 2020 (the vast majority of which were new arrears in March), this rise relates to the very earliest effects of the Covid-19 outbreak at the start of March, with the payment holiday scheme being introduced shortly after this, helping to prevent further payment issues for borrowers who might be struggling.”

The data also reveals the number of possessions in Q1, which would have been tapered by a moratorium on orders that took effect in March. A total 1,070 residential properties were taken into possession, 23 per cent fewer than the same period in 2019.

Bilbe explained in his analysis that UK Finance has seen a small decrease in residential possessions and a rise in buy-to-let possessions compared to Q1 last year, due to the backlog of historic cases and lenders ensuring these were being processed on the same basis as the latest regulatory requirements.

Mortgage holidays
The arrears figures emerged shortly after other stats from UK Finance, which showed that almost 700,000 payment holidays were granted to mortgage borrowers during April, taking the total to 1.6million by April 24.

The scale of these payment freezes means one in seven mortgages in the UK are now subject to a payment holiday. For the average mortgage holder, the payment holiday amounts to £755 per month of suspended payments.

Commenting on the overall, modest arrears rise, Dave Miller, client account manager at Spicerhaart Corporate Sales, said: “There remains a serious issue for more than 22,000 homeowners with arrears of 10 percent or more – a number that had been gradually falling before Covid-19 struck but still highly significant for the individuals and families involved.

“Although they will benefit in the short run from the cessation of possessions activity, the longer it goes on, the worse their position becomes. Most of those borrowers are unlikely to be in a better position to address those arrears after the payment holiday is ended, and both lenders and the government need to think through what the best approach is to helping people in that situation.”

Buy-to-let
On the buy-to-let side, some 4,420 mortgages were in arrears of 2.5 percent or more during the first quarter, six percent fewer than Q1 2019. Within the total, there were 1,170 buy-to-let mortgages with more significant arrears (10 percent or more of the balance). This was three percent fewer than Q1 2019.

Some 640 buy-to-let mortgaged properties were taken into possession, eight percent more than a year ago.

Aside from mortgage payment holidays and the moratorium on possessions, banks have offered more than 27 million customers the option of interest-free borrowing for three months, on the first £500 of their arranged overdraft.

As at the end of April, lenders had also provided almost 700,000 payment holidays on credit cards and 470,000 on personal loans for customers facing cash-flow problems due to the coronavirus.