Although arrears and repossessions are falling, borrowers still need to be prepared for interest rate rises, warns UK Finance.
Data from the new trade association, which has replaced the Council of Mortgage Lenders, revealed the number of mortgages in arrears of 2.5% or more of the outstanding balance declined to 88,200 in the second quarter.
This is 5% lower than in the first quarter and the lowest level since 1994.
The number of properties taken into possession also declined in the second quarter from 1,900 to 1,800 – the lowest since 2008.
Paul Smee, UK Finance head of mortgages, said: “These figures show that the overwhelming majority of borrowers are managing their mortgage payments successfully, and many of those who have experienced some difficulty in the past are able to recover their financial position. The recent improvement in the number of mortgages with high levels of arrears is particularly welcome.
“Borrowers are being helped by low interest rates, but mortgage costs are certain to rise at some stage. It is important therefore for customers to plan ahead and consider how their finances would be affected in those circumstances. As ever, lenders will continue to help borrowers resolve any financial difficulty if possible, so customers should not hesitate to contact their lender if they anticipate any payment problems.”
The rate of buy-to-let arrears was lower than arrears in the owner-occupied sector, although the buy-to-let possession rate was higher.
UK Finance said this is because lenders extend a high level of forbearance to owner-occupiers to help them overcome any period of financial difficulty and stay in their homes wherever possible.
Jonathan Harris, director of mortgage broker Anderson Harris, said: “With interest rates at rock-bottom for so long, it should follow that the number of properties repossessed or those finding themselves in mortgage arrears, should continue to fall. That said, there is no room for complacency – the only direction for rates to move is upwards and while this isn’t expected to happen imminently it is important that borrowers are prepared.
“Interest rates will rise at some point so borrowers need to plan ahead and consider how they would cope with higher mortgage costs. For those who would struggle to pay their mortgage were interest rates to rise, a fixed rate makes sense, and the good news is that there are many excellent deals available which will keep monthly payments low and help with budgeting.
“It is vital that borrowers keep their lender in the loop if they are struggling with their mortgage. The data shows that lenders are being flexible and showing forbearance but it is much easier and less stressful to come up with solutions early on than further down the line when the options may be much more limited.”
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