The proportion of UK mortgages in severe arrears, of more than three months, continue to fall throughout 2014, the latest Mortgage Market Index of rating agency Fitch shows.
As interest rates remain low, more consumers are able to keep up with mortgage repayments. This is also the reason why repossessions have remained almost unchanged during last year.
Prime rated mortgages in severe arrears dropped by 23.9 per cent last year, which is the lowest level they’ve reached since 2009. Back then mortgages in severe arrears peaked as a result of the financial crisis and ahead of the Bank of England’s base rate cut to 0.5 per cent.
The non-conforming mortgages, which do not meet guidelines to be rated as prime, saw an 8.5 per cent decline in arrears in the course of 2014.
In the buy-to-let mortgage sector there was an 18.5 per cent fall in loans in severe arrears.
Both the proportion of non-conforming and of buy-to-let mortgages in late-stage arrears have reached levels close to the pre-crisis ones of 2006/07.
Fitch said the Mortgage Market Review (MMR), which was completed by the Financial Conduct Authority (FCA) in April 2014, has contributed to the decline in severe arrears. This is because the MMR has strengthened the rules for lenders, which now look more closely at the borrowers ability to manage their repayments.
The rating agency projected that mortgage rates will remain at historic lows in the first half of this year and the growing competition will drive rates on higher LTV mortgages further down. In the second half of 2015, however, rates are seen to raise again in anticipation of policy rate rises.
