Page last updated at 12:41 GMT, Tuesday, 17 March 2009

Mortgage arrears up 31% in 2008

The FSA says mortgage arrears have increased steadily since early 2007

The number of mortgage accounts in arrears has shot up by 31% in the past year, according to figures from the Financial Services Authority (FSA).

At the end of 2008 there were 377,000 accounts in arrears by 1.5% or more of their loan balance, roughly equivalent to arrears of at least three months.

It means borrowers in trouble currently hold 3.4% of all mortgage loans, with their loans worth just over £40bn.

Other government figures show house price falls are speeding up.

Borrowers 'struggling'

The City regulator has been publishing its detailed figures on the mortgage industry since the middle of last year.

They clearly illustrate how the recession, growing unemployment, and falling incomes, have made it harder for some people to repay the home loans they took out before the house price boom of the past decade reached a climax two years ago.

"With borrowers increasingly struggling to clear their arrears, the total number of loan accounts in arrears has been steadily increasing since early 2007," said the FSA.

Its figures also show that many lenders are still taking risks by lending to people who cannot prove they have a stable income.

These self-certified mortgages made up 16.5% of new mortgages granted to single-income applicants in the last three months of 2008, and 20% of applicants using joint incomes.

The FSA describes these as "not evidenced" and their prevalence has fallen only slightly in the past year and a half since the housing bubble burst.

Self-certified mortgages have produced the greatest arrears problems for troubled lenders such as the Bradford & Bingley, and are sometimes referred to as "liars loans" as people have exaggerated their incomes to obtain a mortgage.

Falling prices

The annual rate of decline UK house prices worsened in January, according to the government's own house price index.

The DCLG index is currently showing a similar trend in annual house price rates to other indices available from commercial sources
Department for Communities and Local Government

The index is published by the Department for Communities and Local Government (DCLG) and is based on home sales completed in January.

It said that prices were 11.5% lower than in January 2008, a faster rate of decline than the 10.2% annual fall seen in December.

This took the price of the average UK property down to £195,724, a fall of £26,034 in the past year.

However, there is some suggestion in the figures that the pace of decline may have been easing off recently.

Prices fell by 3.9% in the past three months, compared with a fall of 5.2% in the preceding quarter.

Mortgage drought

The DCLG figures suggest that the fall in house prices, which started in the autumn of 2007, has not been quite as severe as indicated by surveys from the Nationwide and the Halifax.

These surveys, based on mortgage approvals, have indicated that prices in the year to February have fallen by nearly 18%.

However, the DCLG said they were all pointing in the same direction.

"The DCLG index is currently showing a similar trend in annual house price rates to other indices available from commercial sources," it said.

The DCLG survey also indicates that the dearth of mortgage finance for first-time buyers is having a distinct effect in driving down prices.

The price of homes bought by first-timers fell by 15.4% in the year to January, compared with a drop of just 10% experienced by homes being bought by former owner-occupiers.

Prices have been falling fastest in Northern Ireland, down 14.3%, and are still highest in London, where the average home costs £301,383.

The slowest decline was in Scotland, where prices fell 6.3%.

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