Mortgage arrears remain near to the historically low levels seen at the end of 2020 as a direct result of payment deferrals and other tailored forbearance, new data published by UK Finance has revealed.

From March 2020 to 31 March 2021, lenders offered payment deferrals of up to six months to customers and buy-to-let (BTL) landlords where COVID-19 had impacted their ability to meet their monthly mortgage payments, with almost 2.9 million granted while the scheme was active.

UK Finance highlighted that mortgage payment deferrals are continuing to help support customers who were not in financial difficulty at the beginning of the pandemic to remain out of arrears.

The latest data showed that there was a small increase of 230 mortgages in arrears in Q1 2021 compared to the previous quarter, with a total of 77,640 homeowner mortgages in arrears of 2.5% or more of the outstanding balance.

Within this total, there were 28,100 homeowner mortgages in early arrears – those between 2.5% and 5% of balance in arrears – which was a decrease of 1% on the previous quarter. Over the same period in 2020, the number of mortgages in early arrears increased modestly, largely due to early payment difficulties prior to payment deferrals being introduced.

There were also 27,280 homeowner mortgages with more significant arrears – those representing 10% or more of the outstanding balance – which was an increase of 620 on the previous quarter. This figure has slowly increased since Q1 2020 but from a low base.

These increases are largely driven by customers who had several missed payments before the pandemic. UK Finance suggested that these borrowers may have made use of the full six months of payment deferrals and are most likely receiving or in need of the help available through lenders’ tailored forbearance support.

Furthermore, the figures showed there were a total of 5,970 BTL mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2021, which was a small increase of 130 on the previous quarter.

UK Finance managing director of personal finance, Eric Leenders, commented: “While there was a slight rise in total arrears in Q1 2021 compared to the historic low levels seen before the pandemic, the additional support from lenders has helped many mortgage customers stay out of arrears.

“With the economic impact of COVID-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021. Any customer who is concerned about their finances should contact their lender early to discuss the options and tailored support available to them.”

Bluestone Mortgages managing director, Steve Seal, suggested that UK Finance’s figures reflect the “crucial role” that payment holidays have played in supporting homeowners during the crisis.
 
“While this may only be a short-term problem for some homeowners, it could drastically impact their credit profile over the long-term – something which could also significantly affect their eligibility for a remortgage or a future mortgage on the high street,” Seal commented.

“Even more concerning, many of these borrowers won’t know where to turn for financing, even though there is a market that’s ready and able to serve them – the specialist lending industry.
 
“This is why advisers should be using this time to highlight their full range of services, particularly those who offer specialist lending and can support borrowers with unusual or poor financial histories.”

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