More mortgage defaulters are paying off debt

More than half of UK homeowners who have fallen behind with their mortgage, paid off some or all of their arrears in the three months leading up to the end of last year, according to research by national law firm Irwin Mitchell.

The ‘Domestic Arrears Report’ carried out by Irwin Mitchell’s field agency business, Ascent, analysed data from over 18,000 households which have missed monthly mortgage payments and subsequently received a mortgage arrears home visit on behalf of their lender.

During the last three months of 2011, 52.3% of households who had previously defaulted on their mortgage, made some contribution towards paying off the debt. This compares to 37.7% of homeowners who did the same during the fourth quarter of 2010 – representing a 38.7% improvement.

Higher repayments

Significantly, those who have fallen behind with their mortgage are also now paying back larger chunks of their defaulted debt.

Out of the 2,862 who received a visit or telephone call from a counsellor during the last three months of 2011, almost 41% paid an amount back equivalent to more than one month’s mortgage payment – up from 31% who were able to do the same during the last quarter of 2010 and 27% in the last three months of 2009.

In 2009, just 1% cleared their arrears completely but most recently this figure reached 3.3%.

Regions

The region where the most household debt was repaid was in the South East where 54.1% of defaulters paid back some or all of their missed mortgage payments.

The region where the least amount of mortgage debt was paid back was the East Midlands (48.4%).

No arrangements

The number of cases where a mortgage arrears home visit resulted in no financial arrangement being reached has fallen to 4.7% in the fourth quarter of 2011 compared to 6% in quarter four 2010.

During the final quarter of last year, 5.6% refused counselling, which is the highest proportion since the first quarter of 2010.

Comment

Niall Gilhooley from Ascent said: “Although the last few months of the year are traditionally the most expensive for households, it appears that the proportion of people paying down debt was up compared to a year ago and very similar to the previous three months.

“These results certainly paint a brighter picture for lenders, however, they also perhaps say a lot about the economy at the moment. Faced with an uncertain economic picture, homeowners appear to be clearing their debts on their home before they spend in other areas.”

Home visits are carried out on behalf of most mortgage lenders after a household has defaulted on their mortgage. During the visit, or phone interview, counsellors discuss the outstanding arrears and aim to develop a sustainable and affordable payment plan for clearing the debt.