The Bank of England’s latest Financial Stability Report has looked at the issues surrounding official arrears figures and the fact that they are “being ‘significantly’ masked”.
The review by the Financial Services Authority, at the request of the bank, looked at the potential scale of the problem due to increasing concern that the true picture of arrears was being “masked” by the actions of lenders.
It is reported that between 5 and 8 percent more households are having difficulty with their mortgages. The true figures are not known because when a lender shows forbearance the arrears are not shown on official figures.
The Financial Stability Report says:
“FSA estimates indicate that around 5% of these households would have been in arrears of six or more months if they had not received forbearance.
That suggests that, in the absence of forbearance, the mortgage arrears rate might have been 0.5 percentage points higher at 1.7%, even at near-zero official interest rates.”
The worry now is though is that any worsening of economic conditions will expose those lenders who have shown greater forbearance to losses.
The report also warned of a rise in mortgage borrowing next year as banks that are exposed to Eurozone risks raise their lending costs.
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