2020: Mortgage Arrears and Repossessions
When you’re a homeowner, paying the mortgage on time keeps a roof over your head – yet the Covid-19 pandemic has impacted thousands of people’s ability to make the monthly repayments. Trying to protect their home during the pandemic is negatively affecting homeowners’ mental health.
Redundancies and furlough have affected massive numbers of people as a result of the pandemic. The number of unemployed in the UK rose to 1.62 million during the third quarter of 2020, while 8.9 million people were furloughed at the height of the lockdown, leading to uncertainty about the future of their jobs.
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This has led to mortgage arrears and continual fears of repossession for people whose home is their most valuable asset. In the third quarter of 2020, 74,850 UK homeowner mortgages were in arrears of 2.5% or more, causing unimaginable worry.
How do repossessions affect mental health?
There’s a clear link between home repossessions and mental health problems, according to research published by the British Medical Journal. Studies were carried out following the 2008 recession when rising unemployment and falling wages led to an increase in repossessions in the UK.
As people sank further into debt, the threat of being homeless and out on the streets led to them slipping deeper into depression. The report described the situation as causing a spike in “adverse health outcomes”. Depression would have been building up over some time and didn’t happen overnight.
The continual worries about putting food on the table and paying bills cause a build-up of significant amounts of stress before the repossession actually happens. Having your home taken away, or even coming close to it, brings a whole new level of anxiety.
It’s no wonder that debt and home repossessions are linked to mental health problems. People slide into depression in relation to the level they have got into debt, especially when there seems to be no way out.
How serious is the situation in 2020?
Mortgage lenders have arranged payment deferrals for homeowners when coronavirus has affected their ability to pay their monthly instalments. The scheme has been up and running since March.
So far, more than 2.6 million UK mortgage payment deferrals have been approved, according to the Mortgage Arrears Possessions Update, released on 12th November. The number of homeowner mortgages in arrears is up 5% on the same period in 2019.
Included in the total are 24,860 homeowner mortgages with more serious arrears of 10% or more. The payment deferral scheme has helped more people to hold on to their homes. While the number of people in arrears has increased, the figure is significantly lower than it would have been without the scheme.
In the third quarter of the year, 390 mortgaged properties were repossessed. Following an industry moratorium on repossessions, this was done only as a last resort, with the majority of properties being empty, or when the homeowner requested this action.
The government has been liaising with banks and building societies to help struggling homeowners throughout 2020. There were a number of schemes up and running before the current Covid-19 crisis to help people under the threat of repossession.
Preventing Repossessions Fund
The Preventing Repossessions Fund, where local authorities offer small loans to mortgage-holders at risk of repossession, was launched by the government following the 2008 economic crisis and recession. The government placed £20 million in the fund to help those at risk.
Under this scheme, the local authority can provide a loan of up to £5,000 to a homeowner facing eviction due to mortgage arrears. A discretionary scheme available in some areas, to be eligible, the household normally must contain a person classed as vulnerable, including elderly and disabled people, or children.
Mortgage Rescue Scheme
The Mortgage Rescue Scheme, run by local authorities, involved a housing association buying the house, or a part of it, to rent it back to the original owner. They could continue living there as a tenant.
To be eligible, the homeowner must be at risk of repossession and the household must contain dependent children, or a vulnerable person, including a pregnant woman, an elderly, ill or disabled person, or someone else with a special reason. Although it is still running for existing customers, the scheme closed to new applicants in 2014.
Homeowner Mortgage Support
The Homeowner Mortgage Support scheme meant homeowners could defer a portion of their monthly interest payments for up to two years. Aimed at homeowners who had suffered a temporary loss of income, they could reduce their monthly mortgage payments.
The portion of monthly payments not being paid due to the scheme would be added onto the outstanding mortgage. If homeowners defaulted on payments, the government guaranteed 80% of the amount that was deferred. Although the scheme closed to new applicants in 2011, the government’s guarantee continues for homeowners already registered.
Support for Mortgage Interest scheme
Changes to the Support for Mortgage Interest scheme have helped homeowners affected by the economic downturn. The waiting period for SMI has been reduced to 13 weeks and the mortgage cap for new, working age claimants has been increased to £200,000.
The SMI scheme enables eligible homeowners to receive help towards interest payments on their mortgage, or on loans they have taken out for home repairs and improvements. Applicants normally need to be receiving a qualifying benefit such as Income Support, Universal Credit, income-related Employment and Support Allowance, income-based Jobseeker’s Allowance, or Pension Credit.
Waiting for 13 weeks for the SMI scheme to be assessed may leave some applicants already in arrears, with worsening financial problems. For some, this means relying on short-term loans to help them get through these challenging times until they start receiving help. If you’re a homeowner who has been affected by Covid-19, always choose a responsible lender, who will assess the affordability of the repayments, so you don’t get deeper in debt.
If you’re in debt due to the Covid-19 pandemic, contact the government-approved National Debt Advice Line UK for impartial advice. If you think you’re suffering from stress or depression as a result of money worries, contact your GP for advice on counselling and other help.