Squeezed household budgets ‘could put upward pressure on mortgage arrears’

The number of homeowners who are severely behind with their mortgage payments edged up towards the end of last year, figures from a trade association show.

And, looking ahead, rising living costs and planned increases in National Insurance contributions are likely to squeeze household budgets further and put an upward pressure on arrears numbers, UK Finance said.

It also expects repossessions to gradually increase this year as courts work through a backlog of cases.

Some 30,010 homeowner mortgages with significant arrears of 10% or more of the outstanding balance were recorded in the fourth quarter of 2021, according to UK Finance’s figures.

This was 350 more cases than the previous quarter and the total has been increasing – albeit from a low base – since early 2020.

Many of these customers were in relatively deep arrears before the pandemic and are likely to have made use of coronavirus-related support schemes.

Customers facing financial difficulty are encouraged to contact their lender early, UK Finance said.

Overall, homeowner mortgage arrears were on a downward path as 2021 ended.

In total, 79,620 homeowner mortgages were in arrears of at least 2.5% of the outstanding balance at the end of December 2021.

This was 750 fewer than in the previous quarter, as well as being lower than the same period a year earlier.

Some 26,850 homeowner mortgages were in early arrears of between 2.5% and 5% of the outstanding balance – a figure which was down compared with the previous quarter and the same quarter a year earlier.

These early arrears figures remain substantially lower than the numbers seen before the pandemic, UK Finance said.

Some 6,010 buy-to-let mortgages were in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2021 – an increase of 2% compared with the previous quarter and 1% down on the number a year earlier.

And 390 homeowner and 320 buy-to-let properties were repossessed in the final quarter of 2021.

A general ban on repossessions was previously in place during the pandemic – and UK Finance said repossessions will gradually increase as courts work through the backlog.

Eric Leenders, managing director of personal finance at UK Finance, said: “There remains a material backlog of possessions cases, dating back to before the pandemic, which will be resolved through this year. This will see possessions increase gradually through 2022 as this process is managed.

“Looking ahead, rising inflation and planned increases in National Insurance contributions are likely to squeeze household budgets through this year, creating upward pressure on arrears numbers.

“Additionally, any further bank rate rises in response to inflation will lead to increased mortgage payments for some, although the majority of borrowers are currently on fixed rates and will see no increase whilst on these rates.

“Despite these additional pressures, responsible lending rules in place since 2014 ensure that mortgages taken out since then have a built-in affordability buffer to cushion borrowers against shocks to income and payments, which will moderate the extent of increases in arrears.

“Lenders continue to provide tailored forbearance and support to borrowers who need help and, as always, we encourage anyone experiencing financial difficulty to contact their finance provider as soon as possible to discuss options available.”