The number of repossessions and mortgages in arrears continues to fall, thanks to a strengthening economy and cheaper home loans.
The number of borrowers with arrears worth at least 2.5% of the total mortgage balance fell below 150,000 by the end of September, according to figures from the Council of Mortgage Lenders.
This compares to around 155,000 at the end of June, and over 159,000 at the end of September 2012.
Repossession numbers have also fallen sharply, to just 0.06% of homeowners. At its current trajectory, the number of repossessions across 2013 is likely to fall well below the initial forecast of 35,000.
This indicates that homeowners have found it easier to manage their finances and overcome difficulties with their mortgage repayments.
Remortgaging
One likely reason for this is the improved affordability of mortgage products, stemming from Government initiatives such as Funding for Lending and the Help to Buy Scheme.
The average rate for new mortgages has reached an all-time low of 3.08%, though borrowers have been warned to beware that interest rates could rise much earlier than the Bank of England’s anticipated 2016.
Any rise to the Bank of England base rate would leave any homeowners with a variable rate or tracker mortgage vulnerable to a hike in their mortgage rates.
(Fixed rate vs. Variable rate mortgages: See our mortgage guide here.)
Property analysts HML have suggested that a rise in the base rate to 1.75% would push an extra 30,000 people into arrears over the course of the subsequent 12 months.
But homeowners appear to be astute to the prospect of a rate increase. Remortgaging activity is at its highest level in six years, according to the chartered surveyors Connells.
Remortgaging valuations rose by over 50% in October on the previous year, the firm said.
Meanwhile, the Legal & General Mortgage Club said there had been a ‘revival’ in fixed-rate mortgages as borrowers thought more carefully about affordability in the medium term.
Managing Director Ben Thompson said that homeowners could work on building an ‘equity buffer’ by overpaying their mortgage at the lower rates. He added that it was important to choose the right mortgage product.
“It may seem sensible to opt for the relative stability that a fixed rate mortgage provides”, he said. “There could be additional costs associated with it that makes it a less attractive option.”
To find out more about how mortgage fees influence the cost, check out our guide. Why not also check out our ‘What’s Hot in October’ mortgage summary, which highlights some of the best mortgage deals at different loan-to-value ranges?
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