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The mortgage arrears and possessions figures from UK Finance for the first quarter of 2020 show a year-on-year decrease but there was a relatively small rise in arrears compared to Q4 2019.

There were 72,380 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2020, 6% fewer than in the same quarter of the previous year.

Within that total, there were 22,050 homeowner mortgages with more significant arrears (representing 10% or more of the outstanding balance). This was also 6% down on the same quarter last year.

Buy-to-let

The number of buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of this year was 4,420 – again 6% fewer than in the same quarter in 2019.

Within this, 1,170 buy-to-let mortgages had more significant arrears and this was 3% lower than in the same quarter the year before.

Arrears rise on previous quarter

Comparing the Q1 2020 figures to the previous quarter of Q4 2019, homeowner mortgages in arrears rose 2% from 70,880 while buy-to-let arrears increased marginally from 4,390.

This is likely due to the early effects of Covid-19, and the industry has since introduced multiple forbearance measures to reduce financial difficulties for borrowers who are in need of support. The level of arrears remain low by historical comparisons.

Callum Bilbe, analyst, data & research at UK Finance, explained: “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.”

Repossessions

The first quarter of 2020 saw 1,070 homeowner mortgaged properties taken into possession, 23% fewer than in the same quarter of the previous year.

Buy-to-let mortgaged properties taken into possession stood at 640 in Q1 2020 this represents a rise of 8% on the same quarter last year.

Second charge mortgage repossession numbers in Q1 2020 fell to 13, according to the Finance & Leasing Association (FLA). This is down from 24 or 45.8% compared to Q1 2019.

Fiona Hoyle, head of consumer and mortgage finance at the FLA, commented: “The rate of second charge repossessions remains very low – just 0.06% in the twelve months to March 2020, and in line with FCA guidance, repossessions have not been taking place during the Coronavirus period.”

Commenting on the UK Finance figures, Jackie Bennett, UK Finance senior advisor, mortgages, commented: “While the number of mortgages in arrears are down 6% year-on-year for both homeowners and landlords, and the number of possessions down 23% for homeowners, lenders know that coronavirus is currently causing financial difficulty for many customers.

“That’s why the banking and finance industry is working hard to support people during this difficult time, including providing more than 1.6 million mortgage payment holidays and introducing a three-month moratorium on any possessions.”

More arrears in the pipeline

Meanwhile, solicitors Parker Bullen has suggested that 1% of borrowers could default on their loans due to redundancies.

Mark Lello, partner at Parker Bullen, said: “We’re concerned that borrowers, brokers and lenders are not acknowledging the elephant in the room. When the government furlough scheme comes to an end, which it inevitably will for all sectors, early indications suggest we could see 1% or more of workers being made redundant.

“With a dearth of new jobs to go to, people who have been used to years of secure employment could find it very hard to find work in the short term. To aid recovery, many businesses will have to adapt and evolve their operating models. This may include closing business premises, having fewer support staff or making roles that have proved non-essential during lockdown redundant.

“We’re therefore advising brokers and lenders to plan for the worst and prepare for defaults that may occur over the coming months.”

By Joanne Atkin

Source: Mortgage Finance Gazette

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