Mortgage Arrears Forecasted to Rise in 2011

Mortgage Arrears Forecasted to Rise in 2011

by David Redmond on 20 Jan, 2011

In its annual forecast for the UK property market, the Council of Mortgage Lenders (CML) has predicted that 2011 will see a rise in mortgage arrears amongst continued stagnation in the market as a whole.

According to the report, first time buyers will be put off by the difficulty of gaining credit, and the poor state of the economy as a whole.

However, the most striking prediction of the report is that there will be 40,000 repossessions this year, up from an estimated 36,000 in 2010. This will come as a surprise to many considering the Bank of England base rate remaining at 0.5% having been cut continuously from 5% since 2008.

The CML believes that although the low cost of borrowing has been crucial in keeping many households afloat, some borrowers will simply not be able to hold out against their mortgage arrears any longer.

First Time Buyers

On the other side of the coin, first time buyers will continue to find it difficult, if not impossible, to take secure finance for their home.

Mortgages have been severely rationed over the last couple of years, and with lenders having to start repaying approximately £130bn of emergency lending during 2011, there is little chance the situation will ease.

On the contrary, the CML warns that the situation may become worse, as international banking rules tighten on loans to borrowers with only small deposits. Meanwhile, the Financial Services Authority (FSA) recently reported that loans with a deposit of 10% or less of the purchase price accounts for just 2% of all new mortgages.

The conclusion of the CML is that the housing and mortgage markets are set to remain flat during 2011, and that a return to the lending levels of the middle of the last decade is unlikely to happen for many years to come.


About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.