Mortgage payment deferrals helped to keep mortgage arrears levels in 2020 near to historically low levels, according to new data published by UK Finance.

Since March last year, mortgage lenders have been offering payment deferrals to customers and buy-to-let (BTL) landlords where COVID-19 has impacted their ability to meet their monthly mortgage payments.

New figures have revealed that 130,000 mortgage payment deferrals were in place at the end of December, a total broadly stable since late October but down from a peak of 1.8 million in June 2020. UK Finance estimated that eight in 10 have returned to making their mortgage payments.

The banking body suggested this means that mortgage payment deferrals have supported customers who were not in financial difficulty at the beginning of the pandemic to remain out of arrears. There were a total of 77,410 homeowner mortgages in arrears of 2.5% or more of the outstanding balance on their mortgage in the fourth quarter of 2020, an increase of 2,560 on the previous quarter.

Within this total, there were 28,400 homeowner mortgages in early arrears – those between 2.5% and 5% of balance in arrears – which an increase of only 2% on the previous quarter. Earlier in 2020, the number of mortgages in early arrears increased in Q1, largely due to early payment difficulties prior to payment deferrals being introduced.

Since then, however, payment deferrals have allowed borrowers who had found themselves in early arrears to pay these off and prevented additional borrowers from going into arrears.

While the latest figures indicated that the number of these early arrears has increased slightly by 490 cases in Q4 2020, this is lower than the number of cases before the COVID-19 pandemic began.

UK Finance stated it is still anticipating the number of early arrears to increase further once the furlough scheme ends and the economic impacts of the pandemic are realised.

“Whilst the data shows a relatively small increase in the total number of all arrears from the historic low levels seen in 2019, the support available from lenders has meant those who were not in financial difficulty at the beginning of the pandemic have remained out of arrears,” UK Finance managing director of personal finance, Eric Leenders, commented.

“Despite the modest uptick, the total number of customers in the early stages of arrears in Q4 2020 remains below the level seen at the end of 2019.

“As COVID-19 continues to affect the economy, we anticipate there will be further increases in mortgage arrears during 2021. Lenders continue to help customers experiencing financial difficulties with a package of support for those who need it, including payment deferrals and tailored assistance.”

Bluestone Mortgages managing director, Steve Seal, added: “In the months to come, it will be crucial that specialist lenders and advisers gear up for the longer-term implications of the crisis.

“This will ensure that both sides are equipped to support borrowers who may otherwise be disenfranchised by mainstream lenders – a cohort which is expected to grow post-crisis – and that more ‘non-vanilla’ customers are able to secure the financing they need in future.”

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