UK homeowners are increasingly struggling to keep up mortgage payments, with the number of loan accounts in serious arrears in the third quarter of 2008 rising by nearly a quarter over the same period the previous year, according to data from the Financial Services Authority.
The FSA, which oversees mortgage lenders, reported that 340,000 arrears cases had arisen by the end of the period, equal to 2.92 per cent of the nation’s mortgage loan book, up sharply by 0.79 per cent over the same period of 2007.
The FSA defines a mortgage in arrears as one which on average is behind on 1.5 per cent of outstanding balances or roughly three months behind in payment.
This is more than twice the 1.44 per cent reported for the same period by the Council of Mortgage Lenders because the regulator’s data includes many loans which are not captured by the trade association’s numbers.
For example, the CML does not include so-called second charge mortgages, which are second loans secured on a home.
Meanwhile, the number of homes repossessed for non-payment have grown significantly with the total rising 92 per cent to 13,161 in the third quarter from under 7,000 the year before.
The surge in repossessions comes in spite of government efforts to pursuade lenders not to evict homeowners in financial difficulty and a voluntary code among lenders to limit such cases. However, while the Council of Mortgage Lenders has said it will work with owner occupiers to modify loan terms, the code does not apply to investors in buy-to-let property or in cases where fraud has occurred.
The FSA data show that banks are struggling to rid themselves of homes once they have taken them back from borrowers.
The stock of repossessed homes on banks’ books totalled 27,113 at the end of the third quarter, up 111 per cent from the year before and up by 27 per cent from the end of the second quarter.
The data showed that lenders were increasingly cautious about lending to buyers with a patchy credit history. Sub-prime borrowers accounted for only 1.5 per cent of new lending in the third quarter of 2008, down from 3.5 per cent the year before.
Lenders are also showing greater caution both in the percentage of each home’s value they are prepared to lend and the size of the mortgage relative to income.
Mortgages with a “loan-to-value” ratio of more than 90 per cent fell to 6.5 per cent by September 2008 from a peak of 15 per cent of new home purchases in early 2007. Loans that are more than 3.5 times an individual borrower’s income - or 2.5 times a couple’s income - are increasingly rare, the data show.
