Rising arrears should not be a cause for panic - help is at hand

UK Finance today published our Arrears and Possessions Data for Q1 2023. This shows that the number of mortgages in arrears continue to slowly rise, following a smaller increase in Q4 2022.

Download: UK Finance Arrears and Possessions update Q1 2023 

It is not unexpected; as set out in the UK Finance Mortgage Market Forecasts, we expect the number of households in arrears to increase in 2023 from historic lows, but to remain below one per cent of outstanding mortgages.

Early arrears increase
Given increases in the cost of living, rising interest rates and the end of wholesale government support for energy bills, we are seeing an increase in the number of households in early arrears (2.5 to five per cent of the outstanding balance).

This should not be a cause for panic. Lenders are proactively supporting borrowers who are worried about their finances. Over the last year, lenders have helped nearly 200,000 borrowers who cannot meet their full mortgage payment by providing tailored forbearance.

Explaining tailored forbearance
Tailored forbearance means that a lender will offer support focused on the borrower’s individual circumstances and what they can afford to pay. Examples of the support available includes a period of reduced payments, a period of zero payments or a temporary switch to interest-only. Importantly borrowers will never be asked to pay more than they can afford.

There is no need for a borrower to wait until they have missed a payment to seek help. Over the last year, lenders proactively supported two million borrowers with financial difficulty assistance, including budgeting support, access to debt advice and breathing space.

Buy-to-let mortgages
Within the data, it appears that buy-to-let mortgages in arrears are increasing at a faster rate than residential mortgages. It is important to note, however, that percentage increases can look large when there is a low base. In Q1, buy-to-let mortgages in arrears increased 16 per cent from the previous quarter. In volume terms, this is an increase of 970 mortgages in arrears.

Similarly, buy-to-let mortgages in early arrears increased 33 per cent from the previous quarter, an increase of 850 mortgages. While these numbers are small, lenders know that people are worried about their finances. This is why buy-to-let landlords are offered the same tailored forbearance and proactive support from their lender.

Contact your lender for support
Simply contacting your lender to find out what options are available will not impact your credit score, but missing payments will do so. That is why we always encourage people to contact their lender as soon as possible.

We know that inflation will continue for some time and lender support can go some way to helping with payments. However, this won’t cushion all households from the effects of increased costs.

Forbearance from other sectors such as energy, telecommunications and water, together with lender support can collectively help those households who are most impacted by rising costs and need a hand to see this through. As an industry, lenders are committed to helping all borrowers.

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