The number of UK mortgages in serious arrears is at its lowest level since the global economic crisis of 2008. For lenders, buyers and homeowners alike this can only be good news; the housing market is recovering and people are regaining the financial stability they need to maintain their monthly mortgage payments.

In the first quarter of 2014, there were 138,200 loans in arrears of at least 2.5% of the total outstanding balance. However, a year later that figure has further dropped 17.6% to 113,900. The number of home repossessions has also dropped in the same period. In the first quarter of 2014, 6,400 homes were repossessed. A year later that figure had fallen by more than half to 3,100. The Council of Mortgage Lenders has released figures which show that mortgage arrears have been steadily decreasing over the last few years. For example, the number of borrowers in arrears who owe the equivalent of 10% or more of their outstanding balance has dropped for eight consecutive quarters.

There are various reasons why homeowners are finding themselves more able to manage their loan repayments. The first is that the broader economic recovery is simply feeding through to individuals’ finances. As the job market lifts and the country gets back on track, household finances are becoming more stable. In addition to this, interest rates are at a six-year low. Because the interest borrowers must pay is rising at a slower rate than inflation, wages go further leaving homeowners in a stronger position when it comes to meeting their monthly repayments on time and in full.

From a lender’s point of view, this is very good news. Lenders that may have panicked a few years ago when borrowers defaulted on their mortgage repayments, now have greater confidence and may resist repossession for longer. In turn, this gives those who have defaulted a larger window of time in which to reorder their finances and regain control.

As mentioned earlier, the healthier job market is also contributing to the drop in mortgage arrears. This is particularly apparent in London, where wages have grown faster than anywhere else, with a current average wage bracket of £30,000 to £60,000. Average weekly earnings are currently at around £493 per week across the country. This number compares favourably with the £306 they dropped to at the height of the recession. As average wages increase, overall employment figures are also on the up. Both these factors, along with the low interest rates, are contributing to a more settled economy, inspiring confidence amongst lenders and borrowers. 

Mortgage arrears can also arise from internal factors. These factors can be anything that effects your personal finance from overspending on your budget, to unplanned repairs that arise outside the remit of your Home & Buildings insurance. For this reason, it is important to carefully manage your personal finances. It is advised  you allow at least a 10% surplus each month for general overspend. As well as allowing a safety net for unplanned expenses. Although the outlook is much improved with regard to long-term employment, favourable interest rates and rising wages, the prospect of facing arrears - or worst repossessions – are still possible if you miss a mortgage payment


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    Carol McDonald