Today we have published our Arrears and Possessions update for Q3 2020. The data shows that amid economic uncertainty and financial difficulties for many, arrears levels have remained near historic lows as the banking industry works alongside government and the regulator to support borrowers during this time. In addition to the industry voluntary moratorium on possession action, this support has meant that possession cases are much lower than expected.

Mortgage arrears

Chart 1: Mortgages by percentage of balance in arrears

Source: UK Finance

Early mortgage arrears (those where a mortgage was in arrears between 1.5 per cent and 5 per cent of balance) increased initially in Q1 2020, primarily due to issues with mortgage payments as a result of the Covid-19 pandemic before the payment deferral scheme came into effect. With the payment deferral scheme introduced in March and ongoing support in place, borrowers who are struggling with payments have been able to defer their monthly mortgage payments and stay out of arrears, preventing a further increase in early arrears. Additionally, those borrowers who found themselves in early arrears due to payment issues have had the opportunity to pay these off, and other outstanding debts. The payment deferral scheme therefore appears to have assisted borrowers during this difficult period.

While early arrears have declined, we have seen modest increases in later arrears in 2020, particularly in those over ten per cent of balance in arrears. It's important to note that the levels of arrears for these bands remain close to recent historically low levels and are much lower than the levels seen in the first half of the last decade.

Mortgage payment deferrals and forbearance

As of 30 October, there were approximately 140,000 mortgage payment deferrals in place, down from a peak of 1.82 million at the start of June. Industry data suggests that of those whose mortgage payment deferral has come to an end, over 80 per cent have resumed making full payments.

The payment deferral scheme was due to end on 31 October and the Financial Conduct Authority (FCA) has proposed extending it until 31 January 2021. The FCA's revised guidance is expected soon and will give further detail on the support available to customers. In the meantime, lenders are continuing to help borrowers through this difficult time with tailored support options. More information on the support available to you can be found by visiting your lenders website or contacting your lender directly.

Mortgage Possessions

Possessions have remained very low since March 2020, as the moratorium on possessions meant that for the most part no properties could be taken into possession without the customer instructing their lender to do so.

The expected updated FCA guidance will outline the changes to the moratorium on possessions, however, this will not immediately translate into a large increase in possessions. We anticipate a gradual increase in possessions starting next year as the courts are not expected to return to normal operational levels for processing cases until March 2021. Lenders continue to show flexibility to borrowers in financial difficulty and possession is always a last resort.

With additional forbearance measures as well as payment deferrals currently in place, the mortgage industry continues to proactively provide support to existing customers that are struggling to meet their payments. FCA guidance to firms is anticipated soon that will give further detail on the support available to customers from lenders moving forward.

Lenders want to help those who are struggling with mortgage payments, so we would always encourage customers to contact their lender via their website or phone channels to understand the level of tailored support available.