DATAMONITOR VIEW 1
Catalyst 1
Summary 1
ANALYSIS 2
The climate for arrears and possessions has proved to be more benign than expected 2
The incidence of arrears and possessions in 2009 was lower than feared at the start of the year 2
Possessions ended the year at 47,700 cases, compared to an initial prediction of 75,000 2
Arrears also came in well below initial forecasts 3
Possessions have risen more slowly than arrears 4
The prevalence of arrears has started to differ depending on what definition is used 5
The incidence of arrears peaked in the first half of 2009 6
Possessions have declined markedly since the middle of 2009 7
Homeowners with the highest level of arrears are struggling the most to restore their finances 8
Loss of job or income was the single biggest factor contributing to arrears incidences 9
The prospects for arrears and possessions beyond 2010 are uncertain 10
Possessions and arrears in 2010 are likely to be below the levels seen in 2009 10
The climate is likely to be much less favorable thereafter 11
The FSA is concerned that lenders may be under-reporting the full extent of arrears in their accounts 11
Lenders are expecting default rates and losses to start rising once more 11
The FSA has introduced new rules on arrears handling that may help to lessen future problems 12
Datamonitor forecasts a modest increase in arrears after 2010 13
The non-standard population will rise during 2010-12 before starting to fall 15
Datamonitor expects the sub-prime population to peak in 2013 15
Several factors have combined to keep arrears and possessions at manageable levels 16
There were several reasons for arrears and possessions falling below expectations 16
Lender forbearance has played a significant role in limiting possessions 17
The fall in possession claims coincided with the introduction of the Pre-Action Protocol 18
Lenders have entered into increasing numbers of arrangements with borrowers in arrears 19
Possessions are less common than during the recession in the early 1990s 20
There are several government initiatives to help homeowners in difficulty 21
The MRS allows borrowers to sell all or part of their home to their local authority 21
HMS enables borrowers to defer their interest payments for up to two years 22
SMI is aimed at assisting those on longer-term benefits 23
Financial assistance available from government schemes is being reduced in the wake of budget cuts 23
The interest rate that is applied to the SMI initiative is to be cut 23
Grants available through the MRS are to be reduced 23
Borrowers have proved very willing to contact their lenders as soon as they have experienced difficulties 23
Research by Datamonitor confirms that arrears are currently an isolated problem 25
More borrowers are overpaying on their mortgages than are in serious arrears 25
Affordability is a key driver of arrears incidence 26
All socioeconomic groups have been equally affected by arrears 27
Some lenders have been more affected by arrears than others 29
All the main lenders ended 2009 with arrears rates at or below the market average 29
The lending criteria of some providers have helped to reduce their exposure to arrears 30
Barclays and Nationwide are best placed to deal with any future falls in property prices 31
LBG has had to make the greatest provision for impairment of all the major lenders 31
All major lenders have policies in place to minimize the incidence of possessions 33
Building societies appear less reluctant to follow the possession route than some of the banks 35
APPENDIX 37
Supplementary data 37
Definitions 47
Formal arrangements 47
Non-standard 47
Sub-prime 47
Temporary concessions 47
Methodology 47
Further reading 48
Ask the analyst 48
Datamonitor consulting 48
Disclaimer 48
List of Tables
Table 1: Forecasts for the number of mortgages more than three months in arrears, 2010-14 14
Table 2: Forecasts for the number of possessions in 2009 versus actual 37
Table 3: Forecasts for the number of mortgages at least 2.5% in arrears in 2009 versus actual 37
Table 4: Annual arrears and possessions 37
Table 5: Comparison of arrears by number of months outstanding and by percentage of outstanding balance 38
Table 6: Mortgages more than 2.5% in arrears 38
Table 7: Properties taken into possession 39
Table 8: Mortgages in arrears (%), by balance in arrears 39
Table 9: Factors causing mortgage arrears 40
Table 10: Net balance of lenders reporting increases on default rate and losses on secured loans 40
Table 11: Size of non-standard population, 2009-14 41
Table 12: Size of sub-prime population, 2009-14 41
Table 13: Possession actions on mortgaged properties 41
Table 14: Number of formal arrangements and temporary concessions 43
Table 15: Comparison of number of possessions between current downturn and previous downturn 43
Table 16: Applications under Mortgage Rescue Scheme 44
Table 17: Stage at which borrowers in difficulty contacted their lender 44
Table 18: Repayment history over the last year (%), by size of mortgage 45
Table 19: Borrowers who have missed at least one payment in the last 12 months (%), by affordability 45
Table 20: Borrowers who have missed at least one payment in the last 12 months (%), by socioeconomic group 46
Table 21: Mortgages more than three months in arrears at the end of 2009 (%) 46
Table 22: Average LTVs on new and existing mortgages in 2009 (%) 46
Table 23: Impairment allowances in 2009 47
List of Figures
Figure 1: The number of possessions in 2009 came in considerably below expectations 3
Figure 2: Arrears also ended the year below forecasts 4
Figure 3: Arrears and possessions have risen significantly since the start of the downturn 5
Figure 4: Arrears are rising faster based on months outstanding rather than as a proportion of total balance 6
Figure 5: Arrears peaked in the second quarter of 2009 before gradually falling 7
Figure 6: The number of possessions on mortgaged properties fell over the course of 2009 8
Figure 7: There has only been a fall in mortgages that are less than 5% in arrears 9
Figure 8: Loss of income is by far the biggest factor driving arrears 10
Figure 9: Following 12 months of improvement, lenders are expecting defaults and losses to start rising 12
Figure 10: The number of mortgages in arrears will reach 239,100 in 2014 in Datamonitor's view 14
Figure 11: The non-standard population will peak in 2012 15
Figure 12: The sub-prime population will rise up to 2013 before starting to fall 16
Figure 13: Possession actions on mortgaged properties fell sharply in late 2008 18
Figure 14: Formal arrangements to repay arrears rose rapidly throughout 2008 20
Figure 15: Possessions are considerably below the levels experienced during the 1990s 21
Figure 16: The MRS has provided help for a limited number of households 22
Figure 17: Over half of borrowers in arrears contacted their lender before or as soon as they got into difficulty 24
Figure 18: Only a small proportion of borrowers are in significant arrears at present 26
Figure 19: The likelihood of arrears rises in line with the lack of affordability 27
Figure 20: All social classes have proved equally susceptible to missed payments 28
Figure 21: Summary of lenders' mortgage books in 2009 29
Figure 22: The arrears rates of the major providers are either in line with or below the market average 30
Figure 23: Barclays and Nationwide enjoy the lowest LTVs on their mortgage books 31
Figure 24: LBG has had to make the largest provision for impairments 33
Figure 25: Nationwide's Mortgage Charter outlines the help that it will provide to homeowners in difficulty 35
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