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Mortgages: Low rates keeps lid on arrears, say lenders

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Media captionBev Budsworth from The Debt Advisor says despite economic factors government policies are working

Low interest rates have kept the level of UK mortgage arrears and home repossessions steady, according to the Council of Mortgage Lenders (CML).

A total of 9,000 homes were repossessed in the second quarter of the year - 100 fewer than in the previous three months, the CML said.

The CML has predicted that a total of 40,000 people will lose their homes this year, up from 36,300 in 2010.

It said its view remained unchanged despite turbulence in the markets.

'Take advice'

The Bank of England has held its Bank rate at 0.5% - a record low - for more than two years.

This has assisted mortgage holders who may have faced difficulty in keeping up with their monthly payments otherwise during a period out of work or as they face other financial pressures, such as rising energy bills.

The total number of mortgages in arrears was broadly unchanged in the second quarter of the year, the CML figures show.

The number of mortgages in arrears of between 1.5% and 2.5% of the outstanding balance edged up from 77,800 in the first three months of the year to 78,500 in the second quarter.

Those in arrears of more than 2.5% of the balance declined from 166,700 to 164,500 over the same period.

The number of householders who have lost their homes owing to mortgage payment difficulties was 7% lower in the first half of 2011 compared with the first half of 2010, and 28% down on the first half of 2009.

"Mortgage repayment problems have stabilised against a current backdrop of stable employment and low interest rates," said CML director general Paul Smee.

The CML has predicted that the number of repossessed homes will rise to 45,000 in 2012.

"Despite current uncertainty in financial markets, we see no need to revise our forecasts. Anyone with debt worries should take advice and speak to their lender at the earliest opportunity, as most temporary financial problems can be resolved," Mr Smee said.

Fewer options

Debt advisers said the continued willingness by banks to show leniency to people struggling to meet their mortgage payments had helped to keep the numbers of repossessions down.

Image caption Some mortgage holders are still finding it difficult to keep up with their monthly payments

And in June, Bank of England governor Sir Mervyn King said that when there was an increase in the Bank rate, there would be a delay in it feeding through to other borrowing costs.

A BBC poll of economists recently found that the majority predicted that the Bank rate would not rise this year, and a handful said there would be no rate increase until 2013.

These predictions have been part of the consideration that had led to mortgage rates for new borrowers being set at historically low levels by lenders.

However, Bev Budsworth, of The Debt Advisor, said there were fewer options for struggling mortgage holders than previously.

"Arrears and repossessions are not a new problem, the difference we have now are the other macro-economic factors like the weak economy and the meltdown of global markets mean that we no longer have any financial fall-back," she said.

"If homeowners are struggling to repay their mortgages or facing repossession, remortgaging or consolidating existing loans may have been a solution in the past. Now, due to the stagnant housing market, this is no longer an option and people are even opting for desperate measures."

Housing Minister Grant Shapps said: "The worst thing anyone struggling to pay their mortgage can do is bury their heads in the sand hoping the problem will go away. No one in financial difficulty should be embarrassed to seek help if they need it."

Buy-to-let recovery

Figures also released show that demand for buy-to-let mortgages continues to grow.

The CML said the number of buy-to-let mortgages rose by 29,000 in the second quarter of the year, to 1,342,200.

They now account for 12.4% of all mortgages, the highest proportion on record since the buy-to-let market took off at the end of the 1990s.

Arrears among buy-to-let mortgage holders continue to fall.

They reached a peak at the start of 2009 with just over 3% of all buy-to-let mortgages more than three months in arrears, but that figure is now down to 1.57%.

The CML said this meant that arrears rates for buy-to-let mortgages were now lower than in the owner-occupied sector, for the first time since 2008.

"If you consider the buy-to-let recovery alongside the increase in first-time buyer numbers, it appears that first-time buyers are not being displaced by buy-to-let landlords but are holding their own in a restricted market," Mr Smee said.

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