Arrears reached historic lows in 2017, but this will be short lived, experts have warned.
Jackie Bennett, director of mortgages at lenders' trade body UK Finance, said there were 89,000 people with arrears balances of 2.5 per cent or more of their outstanding mortgage last year.
However, she said these low figures are expected to increase this year as some households come struggle to deal with expected increases in interest rates, as well a tightening of the rules around government help for people unable to pay their mortgage.
Speaking at the UK Finance annual mortgage Lunch on Friday (20 April), she said: “We are expecting [the arrears] numbers to increase this year as some households come under pressure from base rate rises and others will be affected by the changes in [the government scheme] Support for Mortgage Interest.
"For those who are not aware, the long-standing support that people can get from the government if they are out of work or receiving pension credit, [Support for Mortgage Interest] changed from a benefit to a loan earlier this month.
"Claimants have to sign up for the loan and, so far, out of the 90,000 eligible, the vast majority have not.”
She added UK Finance has been coordinating efforts with lenders, debt advice charities and others to try to ensure recipients are made aware of the changes and take action.
“We have also been liaising closely with the government. Lenders have been contacting customers and discussing options with them for making up the payments if they do not want to take out the loan.
"However, that’s not an option for everyone and unfortunately some may fall into arrears.
"Repossession is always a last resort and we will continue to monitor the situation closely over the remainder of the year,” she said.
At the same event, Stephen Jones, chief executive of UK Finance, warned lenders also have a responsibility to ensure that they only offer loans to borrowers who can afford it, and that those customers who do enter financial difficulty are given the support they need.
That is why he welcomed the news that across the country, overall arrears and possessions have reached historic lows. Last year there were fewer than 5,000 homeowner possessions, which is the lowest level since 1980.
He said: “This has been helped by low interest rates and a significant degree of forbearance by lenders.
"The Bank of England’s Financial Policy Committee recently raised concerns about credit conditions in the mortgage market, and particularly about high loan to income ratio loans.
"But it is important to point out that a higher Loan to Income (LTI) ratio does not necessarily equate to riskier lending.”
In fact, he said the evidence shows that the regions where high LTI lending is most widespread actually have the lowest incidence of mortgage arrears.
