Scottish Housing Market Review Q1 2024

8. Mortgage Arrears and Possessions

8.1. Arrears

As shown in Chart 8.1, following a peak of 39,556 in Q4 2008 during the financial crisis, there was a long-term declining trend in the number of regulated mortgage accounts entering arrears, which continued during the Covid period to reach a trough of 8,579 in Q3 2021^[4] (Source: FCA). More recently, the number of regulated mortgage loan accounts entering arrears increased consistently from Q1 2022 to Q3 2023 before decreasing in Q4 2023 to 14,824.

Despite the number of mortgage accounts entering arrears easing on the quarter, the number of accounts entering arrears in the UK has increased annually by 2,746 (22.7%). Moreover compared to the quarterly average for 2019-20, immediately prior to the pandemic, the level of arrears in Q4 2023 was 16% higher.

Source: FCA. Includes both securitised and unsecuritised loans

The share of lenders' outstanding regulated mortgage balances that were in arrears of more than 1.5% of the outstanding loan balance stood at 1.1% at the end of Q4 2023. This share had remained broadly stable during the pandemic but started to increase sharply at the end of 2022 and into 2023. Chart 8.2 plots the share of lenders' outstanding balances that were in arrears by degree of severity. As would be expected, the categories which have recorded the largest increase in share since the recent trough are the lowest arrears categories (1.5% - 2.5% and 2.5% - 5.0%) since it will take time for arrears to accumulate. In Q4 2023, the share of the highest category of arrears (10% or more) is, at 0.25% of total loan balances, currently still approximately in line with its average in the post-covid period (0.22% over the period from Q2 2020 to Q4 2023).

Source: FCA. Includes both securitised and unsecuritised loans; share is calculated as balances on cases which are in arrears expressed as a % of total loan balances

UK Finance data shows that there was 19,560 BTL mortgages in arrears of 1.5% or more of the outstanding balance across the UK at the end of Q4 2023, compared to 8,820 a year earlier; this is the highest level since Q1 2009 when comparable data was first available. The number of BTL mortgages in arrears of 1.5% or more as a percentage of the total number of BTL mortgages was 0.99%. FCA data for non-regulated lending (which includes BTL lending but also some other types of lending, and is collected on a somewhat different basis^[5]) shows that at the end of Q4 2023 mortgages which were 1.5% or more in arrears represented 1.62% of the total number of mortgages, up from 1.13% a year earlier, and the highest figure since Q4 2016, although it remains well below the peak of 2.68% reached in Q1 2009 during the financial crisis.

8.2. Possessions

FCA data (see Chart 8.3) shows that despite restrictions on possessions having being lifted on 1 April 2021, there were only 698 new regulated mortgage possessions across the UK in Q4 2023. This was a decrease of 37 (5.6%) relative to a year before, and 44% below the quarterly average for 2019-20, the fiscal year preceding the pandemic.

With respect to non-regulated mortgage lending, FCA data show that although there was a 31% annual increase in new possessions in Q4 2023, the level of possessions remained 12% below the average for 2019-20. Similarly, UK Finance data on Buy-to-Let mortgages specifically shows a 56% annual rise Q4 2023, with new Buy-to-Let possessions across the UK standing at 500, although this is 26% below the average for 2019-20.

Source: FCA