Arrears and repossessions continue welcome decline

The number of mortgages behind with payments also fell. As at the end of June there were 178,200 loans with arrears equivalent to 2.5% or more of their mortgage balance. This was 5% lower than at the end of March, and 17% lower than a year earlier.

The continuing welcome decline in payment problems has led the CML to revise its forecasts for arrears and repossessions in 2010 as a whole. The CML now expects 175,000 mortgages to end the year 2.5% or more in arrears, compared with the previous forecast of 205,000. A total of 39,000 repossessions is now forecast for 2010 as a whole, compared with the previous forecast of 53,000.

However, there is no room for complacency looking further ahead. The headline arrears figure masks differences in the experience of different arrears bands. For example, in the lowest arrears category (between 1.5% and 2.5% of balance, or £1,500 to £2,500 on a £100,000 mortgage) there has been a marked improvement from the peak in the first quarter of 2009, when 1% of all mortgages were in this category, to 0.7% now. But in the highest 10% or more arrears category, the proportion of mortgages has remained almost static at 0.23% (compared with the peak of 0.24%).

In the higher arrears categories, some mortgages will have improved, and returned to lower categories, while others will have worsened and followed through to repossession, and will in turn have been replaced by other mortgages flowing up from lower arrears bands where arrears are worsening.

It is notable that, unlike the lower arrears bands, the higher bands are showing less of a decline, suggesting that there is still a significant segment of borrowers whose arrears may have been stabilised through lender forbearance or other support, but whose situation is not improving enough to enable them to claw their way out of problems. These finely-balanced arrears cases are the ones who may be at most risk of tipping into repossession if there are negative changes such as higher interest rates or reduced benefit support.

CML director general Michael Coogan said:

"Mortgage difficulties have so far been contained at lower levels than we expected at the start of the year, and by comparison to the 1990s recession.

"However, the safety net for borrowers is weakened by the prospect of higher interest rates, a possible rise in unemployment, a counter-productive stigma hanging over mortgage payment protection insurance, uncertainty over future debt advice funding, reduced government support for mortgage payments, and mortgage rescue schemes being reviewed as part of the deficit reduction plan.

"While we don’t want to cry wolf, it seems obvious that the ongoing prognosis for arrears and possessions is far from a healthy all-clear. We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work."

Nigel Lewis, property analyst at FindaProperty.com, said:

“It is no surprise that the latest CML figures show another decline in the number of people going into arrears and being repossessed. However, repossessions and arrears will only remain relatively low while interest rates remain low – but Mervyn King yesterday said they are likely to rise soon as inflation continues to creep up. This could have a knock on effect on borrowers as they see monthly repayments rise and give a truer picture of how many are actually living on a financial tightrope.

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