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Boring arrears and dull repossessions

9 November 2017 by Elena Rinaldi

As Ben mentioned in his last blog (Your boyfriend is chatting up the consumer!) there has been a lot of focus over the last six months on the quantity of lending and expected performance of consumer debt. This morning CML released the Q3 data on arrears and possessions on UK mortgages and we thought it was worth commenting on the results.

For context there are more than 11 million mortgages (£1.3tn equiv.) currently in the UK market.

The number of mortgages in arrears of 2.5% or more of the outstanding balance continued to drop during the quarter from 90,400 to 88,300 (0.8%). This is the lowest level since 1994. Looking at the type of borrower, arrears on Owner Occupier mortgages were down 2.3% from the second quarter while the data for Buy To Let mortgage arrears slightly increased (from 5,000 to 5,100). Overall CML reported an improvement in number of arrears across all bands apart from those owing more than 10% of the outstanding balance with an increase of 0.4% from previous quarter in this bucket.

 

Source: UK Finance

The number of properties repossessed however was slightly higher at 1,900 (0.02%) from 1,800 last quarter. In the third quarter Owner Occupiers underperformed while Buy to Let repossessions fell from 700 to 600. This was the first increase in repossessions after three years, however they still remain low at historically low levels. An annualised rate of 0.08% is not exactly something to get excited about.

While this data is relatively dull, we have seen a slight loosening in lending standards, and so it is worth keeping an eye on future performance, with 2 further 25bps rate rises over the next 2 yrs highlighted last week by the Bank of England.

The latest arrears and repossessions data doesn’t reflect the recent interest rate hike and it could be possible that the numbers will increase as borrowers ‘on the margins’ tend to be the most vulnerable. Regarding this, the Head of Mortgage Policy at UK Finance said:  “The majority of borrowers will be protected from any immediate effects of today’s small increase because they have a fixed-rate mortgage.  Over the last year, two thirds of first-time buyers have opted to fix their rate for up to two years, with a further one in four opting to fix for two to five years. Given that variable rate lenders assess the ability of applicants to pay at much higher interest rates, most should be able to cope with any increases as they filter down.”

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