Despite the best efforts of lenders, regulators and the wider mortgage market, an unhelpful narrative still remains that lenders will look to repossess the property at the first sign of difficulty. Without any context, the latest data from UK Finance, which shows both a quarterly and year-on-year increase in the number of mortgage possessions, certainly helps to fuel this misconception.
However, with the benefit of the full picture, we see that while increasing, possessions still account for just a fraction of the overall customers in arrears. Furthermore, they still remain low by both pre-Covid and broader historical standards. If our interactions with lenders have taught us anything, it is that mortgage companies look for every opportunity not to repossess the property and instead utilise a range of forbearance measures to ensure this is the very last resort.
The latest data from UK Finance points to this too. Not only does the overall number of arrears remain unchanged, but the number of homeowner mortgages in the lightest arrears band (representing between 2.5 and 5% of the outstanding balance) and those between 5 and 7.5% has actually decreased. Meanwhile, recent data from the Bank of England points to a drop in new arrears cases.
While this does potentially show promising signs that the pain of the cost-of-living crisis may have peaked for many households, it also supports the fact that lenders continue to be proactive and intercept arrears cases early with a range of forbearance measures.
Of course, we cannot overlook those in late arrears (7.5% or above) which continues to increase and is a key catalyst in the rise in repossessions. There’s no doubt that this is the segment that lenders must stay closest too and the borrowers that need to seek support with real urgency. Even in these difficult circumstances though, lenders still have tools at their disposal well before looking to enforce an order for possession.
One such example is supporting customers to sell the property themselves, pausing any potential action or avoiding it entirely. This is known as an Assisted Voluntary Sale, where a lender will work with an asset manager to understand the full picture of the property and its value, before marketing the property and assisting the customer until completion of a sale.
The aim is to complete this process in the shortest possible time, all while achieving the best possible price for the property. Not only does this ensure a good result for the lender, but a positive outcome for the borrower, which is absolutely key. In our own experience, we have seen that a large proportion of homeowners although deep in arrears have still managed to secure sizeable surplus sales proceeds at the conclusion of this process. This enables them to move forward with their lives after returning to financial stability.
With house prices continuing to show real resilience, particularly with the latest Halifax House Price Index showing prices increasing for a third straight month and at their strongest rate since 2022, this can be a reality for a large number of borrowers in difficulty.
It does require lenders to have the right partners in place to provide an end-to-end management process, especially as new business demands and increasing competition in the market continue to draw on their resources. With the right knowledge, technology and capabilities, an asset manager can work with the lender and most importantly the borrower to understand the property and its value, assess its condition and implement a sales and marketing strategy to secure the best possible price.
Unfortunately, this isn’t always possible, especially if the property has been mistreated and is in a poor state of repair. In these instances, it may be the best outcome for both the borrower and the lender to repossess the property. It’s another reminder to lenders just how important it is to have a real understanding of both the value and potential risk of their property portfolio – working with an asset manager to review the mortgage book regularly and identify potential red flags, allowing them to utilise information available to make informed decisions.
While the rise in mortgage possessions will sound alarm bells for some, the full context offers a more nuanced picture. Lenders continue to work proactively to prevent repossession, using a range of forbearance measures and early interventions to offer homeowners in difficulty clear routes to regain financial stability. Assisted Voluntary Sales, along with proactive management of arrears cases play a crucial role in this process, as does the support of expert asset managers. Nonetheless, lenders must remain vigilant, especially with late-stage arrears, to ensure that repossession remains a last resort and borrowers are given the best chance to receive a positive outcome.
