There were 130,000 mortgage payment deferrals in place at the end of December 2020, broadly stable since late October, according to the latest data from UK Finance.
However, the total of 77,410 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance in the fourth quarter of 2020, increased by 2,560 on the previous quarter.
The banking body adds, within this total, there were 28,400 homeowner mortgages in early arrears — those between 2.5 and 5 per cent of balance in arrears — an increase of 2 per cent on the previous quarter.
UK Finance says: “As a direct result of payment deferrals and other tailored forbearance, mortgage arrears levels in 2020 remain near to the historically low levels that we have seen in the last three years.”
But the association expects arrears to mount later in the year, once the economic effects of the pandemic begin to unwind.
It says: “We anticipate that the number of early arrears will increase further once the furlough scheme ends and the economic impacts of the pandemic are realised.”
Earlier in 2020, the number of mortgages in early arrears increased in the first quarter of last year, said the finance body, mainly due to early payment difficulties before payment deferrals were introduced.
But it added, since then, payment deferrals have allowed borrowers in early arrears to pay these off and has prevented additional borrowers from going into arrears.
UK Finance says: “This resulted in a decline in early homeowner arrears in the following two quarters of 2020, larger than the increase seen in the first quarter. While the number of these early arrears has increased slightly by 490 cases in the fourth quarter of 2020, this is lower than the number of cases before the Covid-19 pandemic began.”
There were 26,660 homeowner mortgages with more significant arrears — representing 10 per cent or more of the outstanding balance — an increase of 1,800 on the previous quarter, according to the association’s data.
It says: “This figure has slowly increased throughout 2020 but from a low base. 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.”
Bluestone Mortgages managing director Steve Seal says: “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.
Seal adds: “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.”
UK Finance managing director of personal finance Eric Leenders says: “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.”
Leenders adds: “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.”
