Plenty of financial information is compared to other figures both before and after the credit crunch of 2008. One good example of this has come to light now, as the latest data from the Bank of England indicates £72 million in residential loans was written off last year. This may sound like a large amount, but the figure for 2015/16 was significantly higher, at £348 million. That represents a drop of 79% in just 12 months.
It also means the total worth of residential mortgages that have been written off has reached a low not seen in more than a decade. The figure is lower than that seen just before the credit crunch hit.
Low interest rates have made mortgages more affordable
This is highlighted as one of the key reasons why we have seen a huge drop in mortgage write-offs this year. Many more people can afford their monthly payments thanks to the low base rate of 0.25% that was in force for several years.
While the base rate has now risen to 0.5%, this is not expected to have a notable effect on the amount of mortgage write-offs that are seen, at least not in the immediate future.
Mortgage arrears are also down
Arrears are divided into bands according to the amount still owed on each mortgage. All but one of these bands showed a decrease in mortgage arrears in the most recent figures. The exception was in those where 10% or more of the remaining balance on the mortgage was still owed. Even then, the increase was slight – moving from 25,500 mortgages to 25,600, or a percentage increase of 0.4%.
Could future rate rises turn this trend around?
“It’s reassuring to see a significant fall in the number of mortgages that are being written off,” said Darren Pescod, CEO of The Mortgage Broker Limited. “Despite the recent base rate rise, which has seen variable mortgage rates rise too, there has been a huge year-on-year fall in write-offs.
“However, with further rate rises a distinct possibility soon, there is a chance we could see a rise in that figure next year. There appears to be greater concern in the potential arrears seen for buy-to-let mortgages rather than standard residential ones, so this will be an area to keep an eye on.”
How long will the picture of stability last?
Even if further rate rises occur, we are unlikely to see a reversal of the picture regarding mortgage write-offs. As some experts have pointed out, the equity held in many properties means if a default does occur, it is easier for the banks and building societies to recover as much cash as possible from the sale.
This all points to a UK property market that remains relatively stable at present. It remains to be seen whether this will last, or whether different results will come to bear. Many commentators will be watching closely as Brexit moves on, although it seems to have had little, if any, impact thus far.