Low interest rates help to boost mortgage stability

The CML, which gathers data on the UK’s 11.3 million mortgages, said repossessions fell by seven per cent in the first six months of the year to 18,100, compared with 19,500 a year earlier.

The proportion of mortgages three or more months in arrears slipped to 2.07 per cent between April and June, from 2.09 per cent between January and March.

Bad debts among buy-to-let mortgages were even lower, with three or more month arrears falling to 1.57 per cent in the second quarter, from 1.62 per cent in the first quarter.

CML director general Paul Smee said: “Mortgage repayment problems have stabilised against a current backdrop of stable employment and low interest rates.”

The Bank of England’s record low 0.5 per cent base rate has helped home owners keep up with mortgage payments.

Consumer organisation Which? warned rate rises – although not expected this year – will hit struggling households.

“For some it would only take a small increase in mortgage rates to send them over the edge,” said Which? executive director Richard Lloyd.

The CML said low level bad debts – mortgages with between 1.5 per cent and 2.5 per cent of the outstanding balance in arrears – edged up to 78,800, from 77,800 in the preceding quarter.

Deeper bad debts – where arrears make up more than 2.5 per cent of the balance – declined from 166,700 to 164,500.

The CML expects mortgages with arrears of more than 2.5 per cent of the balance to total 180,000 for the whole year.

UKAR, the state-owned parent of Northern Rock’s “bad bank” and Bradford & Bingley’s mortgage book, recently warned of growing pressure on households’ ability to repay mortgages.

Chief executive Richard Banks said: “We are predicting that because of the general increase in the cost of living that over the next six months there are going to be more customers who become distressed and who fall into arrears.”

The number of B&B’s loans at least three months in arrears fell to 3.6 per cent at the end of June, from 4.1 per cent last December.

Mr Smee urged any struggling borrowers to contact their lenders. He said: “It is clear from the low rate of repossession that lenders do want to keep people in their homes, and are successfully doing so in the vast majority of arrears cases. Repossession really is seen as a last resort.”

The CML said there were 32,000 buy-to-let loans, worth £3.5bn, taken out from April to June, making it the highest number and value since the end of 2008.

The buy-to-let market is booming as would-be buyers, but repossessions in the sector grew by nine per cent to 1,700 in the second quarter.