FSA Publish Rise in Mortgage Arrears

by Mark Johnston

Shocking data from the Financial Services Authority (FSA) has shown that borrowers in the United Kingdom are starting to fall behind with their mortgage repayments. This is a very big concern for both the industry and UK government as it may mean trouble for the UK economy when interest rates rise.

The report showed that around 345,000 borrowers are falling behind with mortgage payments and have some sort of loan arrears. The concern is that if this number rises and more start top default, it could create another financial crisis as banks would struggle to withstand more losses on their balance sheets.

Of the 345,000 borrowers in arrears, less than ten percent have agreed a way forward with their lender which is making the industry very nervous as this is what brought leading banks and building societies to their knees just a few years ago. Many of the borrowers are making some sort of payment but not nearly enough to keep up with payments whilst some borrowers aren’t making any sort of payment at all.

The report also showed that just over 16,000 borrowers had mortgage arrears added to their outstanding balance which totalled a massive £44 million albeit not on the same levels as what the industry had seen. This seems to be one of the ways that some lenders are helping their struggling customers get back on track. Following the financial crisis, lenders have realised that no one benefits from repossessing houses and many have found creative ways of helping out in difficult times.

Even the government recognised the need to keep people in their homes and provide extra help. During the crisis they launched a number of schemes that helped struggling households pay their mortgage and as a result has seen the number of home repossessions drop considerably. This government help and the willingness of lenders to be flexible have resulted in the number of repossessions to be much lower than most experts predicted.

The report which was published by the Financial Services Authority (FSA) also showed some positive signs of life in the stricken UK mortgage market. The data showed that the mortgage market which has been struggling for sometime has picked up slightly in the third part of 2010. This may well be good news for both the mortgage sector and wider housing market with net lending reaching£8.3 billion, the highest it’s been for the last two years.

Although the figures were up by almost 30% when compared to last year, the number of first time buyers was still down last month and showed no sign of improvement. Data from the Royal Institution of Chartered Surveyors showed that their figures had dropped to their lowest levels in about 18 months.

Ian Perry, a spokes person for the Royal Institution of Chartered Surveyors said: “Despite some better economic data, fears over how future spending cuts will impact on the jobs market are clearly still weighing heavily on potential purchasers’ minds, with many deciding to ‘wait and see’ until the new year. Meanwhile, the lack of mortgage finance continues to deter first time buyers.”

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