- 25 February 2021
- Posted by: mikey0809
- Categories: Mortgage, Property
Analysis show that the take-up of mortgage payment holidays was higher and longer among borrowers with weaker credit profiles.
Rating agency Fitch say that the pandemic had a greater impact on the finances of so-called ‘non-prime borrowers’.
With these borrowers expected to see a greater increase than prime-counterparts, a peak in arrears is expected later this year or early 2022.
Fitch said in a report on mortgage arrears of Residential Mortgage-Backed Securities (RMBS), that payment holidays and the furlough and self-employed government schemes have joined to setback arrears and lessen the shock to household income in both non-prime and prime cases.
UK prime transactions on payment holiday peaked just below 20% in May 2020 and fell to below 10% by August 2020.
Payment holidays were taken conservatively by those borrowers that saw that their income as weak, in particular the self-employed.
Finch said that payment holidays are available until the end of March 2021, and subject to a cumulative maximum six-month term, but it does not see another peak in payment breaks.
The report added that lenders are likely to offer further fortitude to these borrowers who have reached the end of payment holidays and are still in financial difficulties to limit the number falling into arrears
The moratorium on repossessions will be in effect until 1 April 2021, but is set to remain at a low level, according to Fitch.
On average, the non-prime sector’s proportion of loans in six-month plus arrears is approximately eight times the level of prime transactions.
Fitch said this is indicative of where the earliest repossessions are likely to arise.
Higher relative levels of late-stage arrears are seen in legacy assets such as Northern Rock.
Among prime borrowers, Fitch said specialist lenders’ transactions such as Charter Court and Finsbury Square, have higher than average levels of late-stage arrears because these lenders are willing to consider borrowers that high street lenders may not.