Mortgage defaults point to financial distress and more trust deeds

21st April 2011

The total number of individuals in arrears with their mortgage has increased during the first quarter of 2011 according to official Bank of England statistics. It is thought this may prompt a rise in the number of trust deeds. The increase has been described as ‘unexpected’ by lenders who predicted the situation was stabilising following a reduction in the level of arrears in 2010.

Observers have been quick to conclude that an increase in mortgage arrears simply reflects the ever-growing pressures on household finances at a time when inflation and taxes are rising, whilst pay remains stagnant.

In part, the statistics may reflect ‘forbearance’ on the part of some banks. This procedure can be described as the act of a bank choosing to allow arrears to occur, and sometimes even increase, without seeking to repossess a property.

Mortgage arrears may also be a warning sign that increased numbers are falling into further levels of unsecured debt. The emotive nature of a family home ensures individuals will go to great lengths to avoid missing mortgage repayments. However, this can further compound the problem as it regularly involves the use of existing lines of unsecured credit (such as credit cards) to fund mortgage payments to the point that such unsecured credit is no longer available. Trust deeds advisers often speak to clients who have had to use ever-increasing amounts of credit in order to keep their mortgage repayments up to date.

Mortgage arrears also indicate other financial commitments, such as unsecured debt repayments and utility bills, may be being neglected in favour of other payments which are perceived as more pressing. Such financial juggling is almost always a bad idea as it leads to false priorities being established and important property and services being put at risk. Trust deeds advisers often find evidence of utility bills and council tax payments being ignored in a desperate attempt by the client to keep up with other debt repayments as best they can.

Mortgage lenders have also reported their concerns that interest rate increases, expected later this year, will push many thousands more into mortgage arrears. Trust deeds companies may see the other sign of this coin, as those who work hard to pay increasing mortgage payments find themselves less able to maintain other existing debt commitments.

Property prices seem likely to continue to decline, as they have done for each of the last four quarters. The gradual erosion of equity and the reducing availability of secured lending have collectively served to restrict the option of consolidating debt which was so popular only a few years ago.

Any individual who is struggling to pay their mortgage, who also has unsecured debts, should seek advice from a qualified debt adviser or trust deeds company. Help can be provided in prioritising payments so that property and services can be best protected.

If you are struggling to make your mortgage repayments and are desperately seeking a source of reputable advice, our trust deeds forum advice line can provide you with exactly that. Call 0800 043 7201 today.

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