Concern over arrears despite fewer defaults
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Industry pundits have warned that mortgage arrears will increase significantly next year despite lenders seeing a fall in defaults in the past quarter.
The Bank of England’s Credit Conditions Survey for Q2 2010 reports a decline in defaults between April and June and an expectation by lenders that the level will remain stable over the next three months.
Linda Will, sales and marketing director at In The Loop Mortgages, says the results of the survey come as no great surprise because of low interest rates and modest house price increases.
But she adds that the lesson of previous recessions is that the key to keeping down arrears is relatively low unemployment.
She says: “Any rise in interest rates soon would have a bad effect on borrowers on the brink. Meanwhile, the impact of government austerity measures will probably drive a significant increase in arrears next year.
She adds: “Sadly, unemployment can go only one way and that’s up. The arrears situation will get worse next year following public sector spending cuts that are likely to be accompanied by significant job losses.”
Paul Walshe, partner and head of lending services at solicitor Moore Blatch, says intense Financial Services Authority pressure and fines handed down to lenders have resulted in less litigation.
He says: “Lenders are doing everything they can before repossessing homes. We used to see litigation after three months’ arrears but now it can be six, seven or even 10 months.
“Of course, this hasn’t made the problem go away - it has just delayed it. And with spending cuts about to drive many people out of work we can expect the situation to worsen.”
The Bank also reports that lenders do not expect LTVs to rise in the next three months while mortgage availability is expected to fall, in part reflecting some lenders’ expectation that wholesale funding market conditions will tighten.
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