Yahoo Finance Cost of living squeeze to leave more households struggling to pay mortgage
Mortgage payments are set to come under pressure as UK households are hit by the cost of living squeeze, UK Finance warns.
The trade body said that mortgage arrears are still trending down and there are currently no early signs of problems.
But rising living costs and planned increases in national insurance contributions are likely to squeeze household budgets further and put an upward pressure on arrears numbers.
“It is encouraging that arrears are still trending down, with no early signs yet of any difficulties in repaying unsecured debts,” Lee Hopley, director of economic insight and research at UK Finance, said.
“However, while households look to be in a good position regarding payments now, we expect some increase in arrears through the year as the rising cost of living starts to bite.”
A total of 85,650 homeowners were behind their payments in the last three months of 2021, down from 90,210 in the first quarter.
However, the figures from UK Finance show that those already struggling to pay their mortgage before the pandemic only fell deeper into financial struggle as COVID battered the economy.
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“Within the downward trend for overall arrears numbers, we have seen the number of customers in deeper arrears, who already had significant payment shortfalls before the pandemic struck, continue to increase,” the report said.
Possessions have also started to increase, following the end of a moratorium, but figures are still historically low. Banks took possession of 710 homes in the last three months of 2021, up from the 320 properties taken into possession during the last quarter of 2020.
Possessions numbers remained low throughout 2021, with a total 2,250 mortgage possessions. In comparison, at the lowest point in the possessions cycle, in the early 2000s, there were 8,200 annual possessions.
“Although we expect possessions to rise from these abnormally low levels, the anticipated increase the next two years would only see figures rise to levels we last saw in the low point of the previous cycle,” UK Finance said.
The report also showed that house purchase activity soared, with a 41% rise in the number of loans to buy property compared to 2020.
This was mostly driven by COVID-triggered social change and the stamp duty holiday, as well as delayed activity from 2020 due to the wider social distancing restrictions.
Overall housing market activity was strong in 2021 — property transactions totalled just under 1.5 million, displaying the strongest year of housing market activity since 2007.
Read more: UK average house price hits £278,000 after fastest rise since 2007
House purchases dropped sharply in the fourth quarter following the end of the stamp duty holiday in September, as lending contracted across all regions in the UK.
The south of England, which had seen strong growth figures in 2020 amid a “race for space”, experienced the biggest drop.
UK Finance data on mortgage applications indicate that lending will move back towards growth territory in early 2022.
UK average house prices increased at the fastest annual pace since 2007 in February to hit a new record high of £278,123, according to a separate report from Halifax.
