Increases in mortgage arrears expected in 2021, says UK Finance

More home-owners are expected to fall into mortgage arrears this year as the economic repercussions of the coronavirus pandemic continue to be felt, according to UK Finance.

The trade association, which represents the banking and finance industry, said mortgage arrears remained close to historically low levels in the first three months of 2021.

From March 2020 to the end of March 2021, lenders were offering payment holidays of up to six months to borrowers whose finances had been affected by the coronavirus pandemic.

Nearly 2.9 million mortgage payment deferrals were granted while the scheme was active.

For borrowers who need additional support beyond the six-month payment holidays, lenders are continuing to offer tailored support.

UK Finance’s latest figures show a small increase of 230 mortgages in arrears compared with the previous quarter, with a total of 77,640 home owner mortgages in arrears of 2.5% or more of the outstanding balance.

Within the total, there were 27,280 mortgages with significant arrears representing 10% or more of the outstanding balance. This was an increase of 620 on the previous quarter.

UK Finance said this figure has slowly increased since early 2020 but from a low base, largely driven by customers who had several missed payments before the pandemic.

Eric Leenders, managing director of personal finance at UK Finance, said: “While there was a slight rise in total arrears in quarter one 2021 compared to the historic low levels seen before the pandemic, the additional support from lenders has helped many mortgage customers stay out of arrears.

“With the economic impact of Covid-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021.

“Any customer who is concerned about their finances should contact their lender early to discuss the options and tailored support available to them.”

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Only 190 home-owner mortgaged properties and 180 buy-to-let mortgaged properties were repossessed in the first quarter of 2021.

Although Financial Conduct Authority (FCA) guidance allowed firms to re-start litigation activity from November 2020, lenders voluntarily committed to pause repossessions in line with a “winter truce” from mid-December 2020 to mid-January 2021, UK Finance said.

It added that repossessions are expected to eventually increase due to the backlog of cases that did not take place in 2020.

These cases will have been in train before the pandemic, it said, adding that repossessions are always a “last resort”.