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Forgotten mortgage problem could derail housing market - warning

The end of a largely-forgotten mortgage initiative connected with the pandemic could end up derailing the current strong housing market, agents have been warned.

Doug Shephard, director at the property website Home, says in his latest monthly market snapshot that deferred mortgage payments - encouraged by the government at the outset of the pandemic - will eventually end, obliging owners in financial difficulties to resume their previous payments.

In November last year the Financial Conduct Authority extended its initiative, urging lenders to allow the deferral of mortgage payments if home owners were hit financially by Coronavirus.

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At the time the FCA said: “Consumers will have until March 31 2021 to apply for an initial or a further payment deferral. After that date, they will be able to extend existing deferrals to July 31 2021, provided these extensions cover consecutive payments, and subject to the maximum six months allowed.”

That deadline of July 31 is now only two weeks away, and Shephard is warning that this - particularly combined with the upcoming end to the furlough scheme - could dramatically alter the supply-demand balance in the housing market.

As of April 2021 some 19 per cent of the customers of the UK’s top six mortgage lenders had deferred mortgage payments; amongst non-bank lenders, the proportion of customers deferring payments was higher still, at 28 per cent.

In his latest commentary, Shephard writes: “It is clear that mortgage forbearance and the furlough scheme have essentially disconnected the housing market from the economic woes of the Coronavirus pandemic.”

He continues: “Rising house prices have also insulated mortgagees from financial distress as they see their equity rise in value. At some point, however, the music may stop and lenders will need to recover their bad debts, and that will lead to a surge in repossessions and distressed sales. How large the surge will be is difficult to estimate but it may be enough to radically affect the balance of supply and demand. Be warned!”

You can see the full Home index here.

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