UK Finance recently published its figures for mortgage arrears and possessions for Q3 2020. Superficially, these figures are encouraging. They show a very low level of arrears and possession action. These figures do, however, have to be set in the context of the special arrangements made for COVID19. This raises the question of what happens now?
The numbers in brief
According to UK Finance’s figures, in Quarter 3, 2020, there were 74,850 homeowner mortgages with arrears of 2.5% or more of the outstanding balance. This figure is 5% higher than the figure for Quarter 3, 2019. There were also 5,400 buy-to-let mortgages with arrears of 2.5% or more of the outstanding balance. This figure is 19% higher than the figure for Quarter 3, 2019.
Repossessions were made on 160 homeowner mortgaged properties and 230 buy-to-let mortgaged properties. This was 88% and 71% lower than the figure for Quarter 3, 2019. As Quarter 3, 2020 was a period in which there was a moratorium on involuntary possessions, it is to be assumed that either these repossessions were by agreement or that the property was already vacant (or both).
The COVID19 situation
Since March 2020, it has been possible for mortgage holders affected by COVID19 to request payment holidays. As the rules currently stand, borrowers are automatically granted payment holidays of up to six months on a self-certification basis. After this time, they must either resume payments as normal or work with their lender to find an alternative solution.
There are two points which are particularly worth noting. Firstly, these payment holidays should not result in negative markers being placed on a borrower’s credit record. Secondly, lenders can continue to apply interest to the account during the holiday period. This means that the result of taking a holiday is that a borrower’s overall balance is raised.
A small win for mortgage prisoners
On a more positive note, the wheels appear to be finally turning for the UK’s mortgage prisoners, although there is still a long way to go before they are freed from their chains. The FCA now allows lenders to use “modified affordability assessments” for qualifying mortgage prisoners. This is by no means all of them but it is at least a start.
Unshackling mortgage prisoners should be a win for everyone. The former mortgage prisoners win from being able to switch to better (i.e. more affordable) deals. The fact that these deals are more affordable should reduce the risk of default, thus being a win for lenders.
The way forward
At some point, the government will have to end the special measures put in place to support those impacted by COVID19. The only questions are when this will happen and how it will happen. In particular, will all measures be ended completely at once or will they be phased out slowly? If the latter, how slowly will they be withdrawn?
Either way, it seems fair to assume that the extent to which the UK’s mortgage market returns to “business as usual” will depend greatly on the extent to which the UK’s economy returns to “business as usual”. This means not just recovering from COVID19 but also adjusting to Brexit. The speed with which this happens may vary greatly from one industry sector to another.
In the short term, lenders may have to show a lot of flexibility to borrowers while they figure out the best path forward in their own unique situation. For example, lenders may have to start allowing greater use of interest-only deals to allow existing homeowners either to make up lost income or to sell their property on their own terms.
Your property may be repossessed if you do not keep up repayments on your mortgage.