There were 78,800 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2018, representing an 8% drop compared to the same period in 2017 and the lowest level since records began in 1994, according to UK Finance’s latest Mortgage Arrears and Possessions Update.

Of the 78,800, there were 24,100 homeowner mortgages with more significant arrears, representing 10% or more of the outstanding balance and a 3% decline compared to Q1 2017.

Within the buy-to-let space a similar trend followed, with 4,500 mortgages in arrears of 2.5% or more, accounting for a 6% fall compared to last year, while 1,100 were in significant arrears of 10% or more.

However, despite the decline and the lowest levels recorded, 1,200 homeowner mortgaged properties were taken into possession in the first quarter of 2018, a figure unchanged from Q1 2017.

UK Finance director of mortgages Jackie Bennett said: “The number of mortgages in arrears is at its lowest level since records began while possessions remain at a historic low.

“This has been helped by low interest rates and lenders supporting borrowers through periods of temporary financial difficulty wherever possible.

“However, the recent change to Support for Mortgage Interest (SMI) from a benefit to a loan, as well as potential pressure on households from a future base rate rise, risk causing a reversal of this trend as the year goes on.

“Only a small minority of those eligible for the SMI loan have taken it up so far. Lenders will proactively help borrowers in receipt of Support for Mortgage Interest (SMI) to see if there are other ways to make up their payments if they do not want to take out the loan.

“As ever, customers should not hesitate to contact their lender if they anticipate any payment problems and want to discuss what options are available. Repossession is always a last resort.”

Spicehaart Corporate Sales managing director Mark Pilling also commented on the report, stating that it is “encouraging” to see these figures at a “record low” and that it is most likely caused by lenders making “much more of a concerted effort to help those who are struggling to pay their mortgages get back on track - rather than moving to the repossession route”.

“However, we could now see things start to shift. Many of those who took out interest-only mortgages are coming to the end of their terms with no way of paying off the capital. And with house prices falling in many regions, they will find they have less equity in their homes than they had hoped. This could cause problems as they try to sell or remortgage to pay off the debt,” Pilling said.

“There is also the Support for Mortgage Interest (SMI) issue. Last month, the SMI benefit stopped and was replaced by a loan. Around 124,000 homeowners were part of that scheme, and only a small number have signed a new loan agreement, so will have lost their payments. This could mean that thousands of homeowners may struggle to make their mortgage repayments in the coming months, with many even going into arrears.”

“With this in mind, combined with the threat of a base rate rise and the fact wage growth remains stagnant, lenders need to be keeping a close eye on their clients’ ability to keep up their repayments and engage with third parties to look after every borrower’s best interests.”

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