Payment deferrals keep mortgage arrears at historic low levels

Total mortgage arrears remain close to historically low levels due to the effects of payment deferrals and other tailored COVID-19 related support, new data published by UK Finance has revealed.

Q2 saw a reduction of 1,370 mortgages in arrears compared to the previous quarter, with a total of 76,270 homeowner mortgages in arrears of 2.5% or more of the outstanding balance.

Within this total, UK Finance confirmed there were 26,560 homeowner mortgages in early arrears, which are those between 2.5 and 5% of balance in arrears. This figure reflects a decrease of 5% on the previous quarter.

Over the same period in 2020, the banking body highlighted that the number of mortgages in early arrears had increased modestly, largely due to payment difficulties caused by the first lockdown prior to payment deferrals being introduced.

From March 2020 to 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 a total of 2.9 million granted while the scheme was active.

The data suggests that payment deferrals have resulted in an overall decline in early homeowner arrears over the course of 2020, with the number of cases in Q2 2021 remaining lower than the number of cases before the pandemic began.

However, the winding down of the furlough scheme by the end of September this year may have an impact on this decline, UK Finance has warned. The banking body is anticipating that early arrears will increase at a “gradual pace” as the economic impacts of the pandemic continue to unfold.

Commenting on the data, PRIMIS Mortgage Network proposition director, Vikki Jefferies, said: “Today’s continued low levels of arrears reflects the fact that the industry has managed to protect those customers who have been most affected by the pandemic.

“There is no doubt that government schemes such as furlough and the Coronavirus Business Interruption Loan Scheme (CBILS), combined with payment deferrals from lenders, have supported customers and the market during this difficult time.
“As these support schemes come to an end, however, it will be vital to provide proactive and sustained support for brokers. The housing market has been a driving force behind the UK’s economic recovery from the coronavirus crisis, but it’s important to note that the long-term impact of the pandemic may not yet be visible and there remain a number of borrowers who faced financial difficulty pre-pandemic who have continued to build up arrears through the crisis.”

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