Mortgage arrears dropped to their lowest rate in more than a decade in 2015, held down by record-low interest rates and a healing economy. The Council of Mortgage Lenders (CML) said just 0.92% of all UK mortgages were in arrears during the year, the best figure since 0.91% in 2004.
Repossessions were also down, with just 10,200 home-owners forced to hand back their keys last year, a drop of more than 50% on 2014, the CML said. Separate figures from the Ministry of Justice show that between October and December 2015, 4,349 mortgage possession claims were recorded in county courts, down 45% compared to the number issued in the same quarter a year before, and the lowest since 1987.
"Of course it is good news that the levels of mortgage arrears and repossessions remain low and falling," said Paul Smee, director general of the CML. "But, at the risk of sounding as if we are crying wolf, we would continue to urge all borrowers to plan ahead for a time when the interest rate environment may be less benevolent. Lenders do not wish to see borrowers who are coping currently falling into difficulty if and when rates do eventually rise."
The Bank of England has held its base rate at 0.5% since 2009 to stimulate lending into the struggling economy. This has kept mortgages cheap, relieving some of the pressure on weak household finances in recent years.
Now the Bank of England's policymakers are weighing up the best time to raise interest rates again and fend off any credit bubbles forming. In 2015 the UK economy was among the fastest growing in the western world amid recovery from the deepest recession since the Second World War.
A rise had been anticipated in 2015. But China's economic slowdown, tumbling share prices and worries over debt levels in emerging markets, among other concerns, are causing policymakers to rethink rate rates because they do not want to harm the domestic economy by moving too early. There are also signs that the British economy is beginning to weaken again, with industrial production, manufacturing and construction output all under-performing expectations.
To curb risky mortgage lending while rates are low and house prices rise sharply, the Bank of England imposed restrictions on the market. Only 15% of a lender's outstanding mortgages can be loans worth more than 4.5 times the borrower's annual income. The rest of its lending stock must be below that. And the Financial Conduct Authority beefed up the affordability tests lenders must carry out on potential borrowers to make sure they could cope with repayments when rates rise.