UK mortgages in serious arrears fall to lowest level since 2008

The proportion of British mortgages in serious arrears is now at its lowest level since 2008 as the economic recovery begins to feed through to household finances.

Data from the Council of Mortgage Lenders on Thursday showed that arrears declined in all bands in the first quarter of the year.

In the most serious bracket, where homeowners owe the equivalent of 10 per cent or more of their outstanding balance, the numbers have now fallen for the past eight consecutive quarters.

Paul Smee, director-general of the CML, said that although "complacency would be misplaced, the underlying picture continues to be one of improvement and a continuing reduction in mortgage arrears and repossessions".

The total number of repossessions in the first three months of the year also fell, down to 3,100 from 4,200 in the final quarter of 2014 and 6,400 for the same quarter last year.

While the CML said this continued the underlying trend of "gentle downward movement", it warned that the reduction may be overstated as some lenders had paused action pending the outcome of a Northern Ireland legal case in which the Bank of Scotland was found to have been unfairly double billing customers who fell behind on mortgages.

Rock-bottom interest rates, an improving jobs market, and lenders' willingness to try and keep people in their homes has played a big part in ensuring that repossessions never reached the heights historically seen in downturns.

In 1991, at the height of the property downturn, 75,500 properties were repossessed, but this time round repossessions peaked at just below 49,000 in 2009.

Brian Murphy, head of lending at brokerage Mortgage Advice Bureau, said that the data suggested that households are "increasingly comfortable with managing their borrowing commitments".

But he added that the "big challenge for industry will be to keep arrears and repossessions low with a higher base rate to contend with".

This was echoed by Jonathan Harris, director of mortgage broker Anderson Harris, who stressed that thousands of homes are still set to be repossessed each year, adding "even though we have had a benign interest rate environment for some years now, there are likely to be people whose finances are teetering on a knife edge and rate rises could easily push them over".

Mark Carney, Bank of England governor, reiterated on Wednesday that the next move in interest rates is likely to be upwards, but rises will be gradual and the headline rate is likely to remain below its historic norms.

The market is expecting the first rate rise to come in late spring next year.

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