Out of the 21,000 total number of repossessions, 16,100 were on owner-occupied properties, and 4,900 were on buy-to-let properties.
At 0.3%, the repossession rate on buy-to-let mortgages was higher than the 0.17% on owner-occupier loans, despite the fact that the underlying arrears rate was lower on buy-to-let lending than on home-owner lending. This is unsurprising, as lenders offer extended forbearance to owner-occupiers to help them get through periods of financial difficulty without losing their home.
There were also fewer mortgages in arrears at the end of 2014 than at any time since 2006. 1.05% of all mortgages were in arrears equivalent to 2.5% or more of the mortgage balance - down from 1.29% at the end of 2013 (and 1.12% at the end of the third quarter of 2014).
In numerical terms, this equates to 116,800 loans - down from 124,400 at the end of the third quarter, and 144,600 at the end of 2013.
Within the total number of mortgages in arrears, there was also a decline in all of the individual arrears bands. Even among the heaviest arrears band (more than 10%), there was a 14% decline year-on-year to 24,700 cases at the end of 2014 - 5% lower than at the end of the third quarter.
The two main traditional drivers of mortgage difficulty are income shocks (such as unemployment) and interest rates. Both factors are relatively benign at present, assisting the welcome decline in both arrears and repossessions, supported by effective lender practices.
Looking ahead, the CML and lenders are very aware that, at some future point, interest rates will rise, and that this will put increased pressure on some household finances. The CML and lenders urge customers to plan ahead for this, to reduce the risk of shocks whenever interest rates do eventually rise.
Richard Sexton, director of e.surv chartered surveyors, comments: “People all across England and Wales have a firmer grasp of their finances compared to a year ago and the Bank of England continues to hold interest rates low, which has been a real boon to those who are already on the housing ladder – allowing them the chance to pay down debts whilst accessing cheaper mortgage repayments. At the same time, wage growth has outpaced inflation for the first time in five years, meaning the cost of living squeeze has started to ease.
This really boils down to people having more money in their pockets than a year ago. Savers may have suffered while the base rate has stayed low, but for those on the edge of the repossessions cliff, it has allowed them the respite needed to claw back their finances and move back into financial security. Moving forwards, the Mortgage Market Review will ensure that future borrowers are able to keep up with repayments, despite fluctuations in interest rates.”
CML director general Paul Smee commented: "The relatively low rate of repossession among owner-occupiers - around 1 in 600 mortgages last year - should help to reassure borrowers that, if they do face payment difficulties, lenders will work with them to try to resolve their problems. Repossession is only ever a last resort.
No-one should be lulled into a false sense of security that the current low interest rates we are experiencing will last forever, though. Rules are in place to ensure lenders assess future affordability, but these are not a substitute for careful borrowing. It's essential for borrowers themselves to have one eye on the future. Think through any borrowing taken on now to ensure it will still be affordable if and when rates rise."
Brian Murphy, Head of Lending at Mortgage Advice Bureau (MAB), comments: “Mortgage affordability has improved radically in recent months, and rock bottom mortgage rates combined with falling unemployment have pushed the level of repossessions in the UK to an eight year low. Today’s Inflation Report confirms that the Bank Base Rate – which will have been at a historic low of 0.5% for six years in March – is unlikely to rise in the immediate future, providing borrowers with an extra window of ultra-low borrowing costs and further minimising the risk of repossession. In a U-turn from previous guidance, BoE governor Mark Carney also stated this morning they would be willing to cut the Bank Rate closer towards 0% if low inflation persisted.
Repossessions are always a last resort and lenders are obligated to help those who are struggling with their mortgage repayments as much as possible. Crucially, lenders have also put in considerable leg-work to improve communications and forewarn borrowers of market changes that could impact their mortgage repayments.
While current market conditions are certainly positive, lenders are well aware that an eventual rise in interest rates must remain at the front of borrowers’ minds. That’s why today’s loans are vigorously stress-tested to ensure borrowers can still afford their repayments once interest rates rise. No-one is offered a mortgage they cannot afford in the long-term and lenders are also building in extra checks by setting additional loan to income (LTI) limits. Once they do increase, interest rates are set to follow a gently rising path to minimise the financial impact on borrowers.”
