The total number of customers in arrears with their mortgages continued to fall in the second quarter, new figures published by UK Finance have confirmed.

Overall, there were 74,540 homeowner mortgages in arrears at the end of June 2022, a fall of approximately 200 homeowner mortgages compared with Q1. This was also 10% fewer than in the second quarter a year ago.

UK Finance defines a mortgage in arrears as one that represents 2.5% or more of an outstanding balance. The banking body’s figures also revealed that there were 5,640 buy-to-let (BTL) mortgages in arrears of 2.5% or more of the outstanding balance in Q2 2022 – a total that was 4% down compared with the previous quarter, and 10% down on the year.

Early arrears mortgages, which UK Finance defines as those representing 2.5% to 5% of the outstanding balance, remain substantially lower than the numbers seen before the pandemic. However, as signalled last quarter, the banking body stated that this could likely reflect early signs of pressure on household finances as rising living cost pressures – including energy price rises and increased National Insurance contributions – have started to weigh more heavily since April.

Within the arrears total, there were 25,160 homeowner mortgages in early arrears, a 1% increase on the previous quarter. This was the only segment that saw an increase in arrears numbers this quarter, but the number remains 14% fewer than the same period in 2021.

Also within the total, there were 28,840 homeowner mortgages with more significant arrears, which UK Finance defines as those representing 10% or more of an outstanding balance. This was 510 fewer cases than the previous quarter.

MPowered Mortgages distribution director, Emma Hollingworth, commented: “During Q2, arrears have continued to fall. While there has been a slight rise in possessions, these figures are still some way from hitting pre-COVID levels, which were themselves low.

“Whilst number remain low, it is important to note that some borrowers may be facing financial difficulty at this time, due in part to the ongoing cost of living crisis, and lenders play a vital role in supporting customers in these situations.

“Part of this is ensuring that affordability checks are carried out accurately and efficiently as part of the mortgage application process.”

UK Finance stated that possession is “always a last resort”, after all other options have been exhausted and a thorough court-based process has considered a borrower’s individual circumstances.

A total of 630 homeowner mortgaged properties, as well as 350 BTL mortgaged properties, were taken into possession in Q2 2022. This level remains unchanged from the first three months of the year, although the UK Finance figures confirmed that the number of BTL mortgage possessions had fallen by 8%, while the number of homeowner mortgage possessions increased by 5%.

In absolute terms, there were 530 more possessions in Q2 2022 compared with the same period last year, however the total for this quarter is approximately half the number seen in Q2 2019.

Phoebus Software sales and marketing director, Richard Pike, added: “The prediction that household energy bills are likely to average £350 per month by January next year is something that, added to the rising cost of mortgages, will put immense pressure on many households.

“Now is the time for borrowers and lenders to be talking to each other and looking at ways to try to manage potential arrears or defaults. It’s not a terrible picture at the moment, but unfortunately there will be some that find themselves in a difficult position over the next six to 12 months, unless things change dramatically.

“That said, lenders should now be investing in ensuring their standard arrears procedures managed on servicing platforms are as automated as possible so that cases, that need to be managed by exception, can be given the time and effort required to ensure the right borrower outcomes.”

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