Arrears Reach 12 Year High – Worried? Take Your Time and Review Your Options
Written on 27 July 2022 by
For many homeowners who have owned a property in the last 10 years this will be the first time they would have had to face serial threats to their income and circumstances.
The pandemic opened new opportunities and altered how we live our lives, but not without testing every sector and business, many of which are still recovering today in trying to balance the new norm.
Pent up demand, access to cheap borrowing and the Stamp Duty holiday fuelled a property price boom with average property prices increasing month on month.
At the end of last year, we reached unprecedented low mortgage rates of 0.79% in October, early signs of inflation started to appear in November due to a cascade of global influences (fuel shortages, importing of goods, post pandemic activity, etc.) and it was expected there would be a potential base rate increase in December 2021. All of this and more led to conversations of a market of change around the corner.
And of course, since December we’ve seen consecutive base rate increases to the current base rate of 1.25% with further rises expected for the remainder of 2022. Adding to this the rate of inflation for June is 9.4% and is estimated to reach 12% by October this year.
With all of these changes and rate rises, it makes sense that homeowners might be worried about what the future holds for them or might even be experiencing the impact already.
Arrears reached a 12 year high of £2.05bn at the end of the first quarter (Q1) of 2022. Regulated and unregulated mortgage arrears reached the landmark total in March, the highest figure since June 2010 when arrears touched £2.09bn, according to data from the Bank of England and the Financial Conduct Authority.
Many economists forecast that the UK economy will slip into a recession during the next 12 months and expect more people to fall into arrears as the cost of living continues to increase.
If you’re worried or currently experiencing difficulties, it’s important to understand that there is support and guidance by the FCA for both lenders and clients.
FCA expectations on lender when dealing with client:
“We expect firms to review their practices in line with our published rules, guidance and examples of good and poor practice. Where appropriate, firms should make relevant changes to meet our expectations in minimising harm to customers.
“We remind firms that they must be compliant with all relevant MCOB rules when dealing with customers with mortgage arrears. These rules include the following:
- Firms must consider the individual circumstances of the customer and determine whether it is appropriate to discuss alternative options (MCOB 13.3.4A R).
- Firms must make reasonable efforts to reach an agreement over the method of repaying the arrears, as an alternative to repossession (MCOB 13.3.2A R (1)).
- Firms must not repossess the property unless all other reasonable attempts to resolve the position have failed (MCOB 13.3.2A R (6)).”
The FCA guidance for mortgage clients:
Our message to customers in arrears
- They should not ignore the situation
- Customers should engage with their mortgage provider about mortgage arrears – more appropriate and sustainable options are available to customers who engage early and are open with the lender
- Early engagement may also prevent the situation from worsening
- They should seek additional support and free, independent guidance from MoneyHelper (formerly the Money Advice Service), which can direct them to providers of free debt advice
- Under our rules, firms may only consider repossession as a last resort
When it comes to your mortgage and understanding your options these are the typical steps to consider:
- Speak with the mortgage lender – being open with the lender early on will allow the lender to propose a solution to support and avoid risk and costs from spiralling out of control. The lender will typically look at changing the amount for a short period, a mortgage holiday, switching to an interest-only mortgage temporarily or even extending the term to lower your monthly payments
- Budget – review your income and expenditure and prioritise what is important, speak with any other secured and unsecured lenders you have borrowing with as each one will be able to support you in their respective ways
- Review your protection insurance – if your circumstances have changed due to health or work conditions, you may find existing policies may cover you that you were not aware of
If you’re worried about any of the topics in this article, or you’re coming to the end of a fixed rate and are concerned about how the rate increase will affect your mortgage payments, contact us on 0330 433 2927 and one of our expert advisers can help you figure out your next steps – whether they be debt consolidation, remortgaging, a further advance, product transfer, reviewing your protection policies or something else entirely.
Category:Nicholas Mendes