Consultant Zone

UK Finance arrears update – do you really know what you are holding/buying?

UK Finance has just issued its arrears data for Q1 of 2022. The press release highlights some of the positive aspects of the data, for example, the headline “The total number of customers in arrears with their mortgages continued to fall in the first quarter of 2022”. It also highlights the reduction in total arrears and in the less serious categories (arrears between 2.5% and 5% of the outstanding balance). However, digging into the data it is easy to see a significant issue developing; for Q1 2019 24,200 homeowners had arrears greater than 10% of their mortgage balance. That figure is now 29,340. Accounts seriously in arrears are therefore getting worse.

At the same time, UK Finance has also issued its monthly economic insight. Not surprisingly it underscores several ‘headwinds’; rising inflation, increasing costs of living, slowing GDP growth and reducing retail sales. Consumer confidence, as measured by research company GfK, is also nosediving. It fell by two percentage points in May to its lowest level since records began in 1974. We are starting to see debates around slower house price growth and the ‘R’ word is now appearing in regular financial market commentaries. The Nationwide Building Society preliminary results statement for the year ending 4 April 2022 states, “There is a risk of a downward movement in house prices, given the pressure on household budgets.”

We have been here before. The early 70’s (oil crisis, stagflation and high inflation caused industrial disputes over pay), early 80’s (deflationary government policies), early 90’s (high bank rates in response to rising inflation) and late 2000’s (global financial crash). There is clearly a lesson to be learnt by CROs; such events are not one in a hundred-year incidents anymore.

Despite the cost-of-living crisis continuing to affect a growing percentage of the population, originators continue to sacrifice margin for market share and growth. Cost of funds have been rising for many months, without resultant increases in loan rates. It’s not just prime lending where this is happening; similarly, before the global financial crash, lending in the non-conforming and non-standard categories were particularly undercharged and not being priced for the actual risk.

Now is the time when every purchaser or holder of a mortgage portfolio needs to fully understand what they are buying, or what is in their existing portfolios. To learn how we can help with your portfolio assessments, give us a call.