Mortgage arrears on the rise as cuts bite

More homeowners fell behind on their mortgage repayments in the closing months of 2010 as spending cuts and rising unemployment turned the screw on household finances.

The Financial Services Authority (FSA) yesterday revealed that 38,000 homeowners were in arrears in the final three months of last year, a 6 per cent increase on the previous quarter and the first rise since the end of 2008.

But while new arrears cases rose, the number of people behind on repayments by at least 1.5 per cent of their outstanding mortgage fell for the eighth consecutive quarter. And repossessions fell by 10 per cent to 8,246 - the lowest level for three years.

Lenders are now getting 56 per cent of the repayments due from customers in arrears, compared with 41 per cent two years ago. Of those in arrears, just over 5 per cent have arranged with their lender to make part-repayments, or to suspend repayments for a period.

Michael Coogan, director of the Council of Mortgage Lenders (CML), said: "The fact that the repossession rate continues to fall, both as measured by the CML and as measured by the FSA, despite the scale of the problems that the economy has faced in the wake of the financial crisis, shows how seriously the lending industry takes its responsibility to make sure that repossession is a last resort."

The FSA figures also showed that loans requiring deposits of 10 per cent or less accounted for just 2 per cent of new mortgages in the last three months of 2010, suggesting lending criteria remains tight. Paul Diggle, property economist at Capital Economics, said: "A lack of lending at higher loan-to-value ratios will continue to drag on activity and prices this year."