Irwin Mitchell Study Reveals Increase In Debt Arrears Payments

Significant Rise in 'DDP' Figure

16.07.2012

The amount of money homeowners are now paying back to lenders after falling behind with their mortgage is significantly higher during this recent economic downturn compared to the previous recession in 2008/09 – according to the latest research by national law firm, Irwin Mitchell.

The comprehensive ‘Domestic Arrears Report’ carried out by law firm Irwin Mitchell’s field agency business, Ascent, analysed data from over 24,000 households across the UK which have missed monthly mortgage payments and subsequently undergone debt counselling on behalf of their lender.

During the second quarter of  2012, Ascent’s ‘Default Debt Paid’ index (DDP)*, a figure which shows the proportion of homeowners who paid off some of their mortgage arrears, increased by 11.1% over the last three months to 60.3%. This compares to 36% of homeowners who were paying debt back in Q3 of 2009.

Significantly, those who have fallen behind with their mortgage in the past are also now paying back larger chunks of their defaulted debt.

Out of the 2,652 who received a visit or telephone call from a debt counsellor during the second three months of 2012, almost 43% paid an amount back equivalent to or more than one month’s mortgage - representing a significant rise on the 37.5% who did the same during Q2 in 2011. Only 27% paid this amount in the last three months of 2009.

In 2009, just 1% cleared their arrears completely. Most recently, however, this figure reached 4%. 

A summary of the key findings contained within Irwin Mitchell’s Domestic Arrears Report include:

- Out of those who agreed to debt counselling during Q2 of 2012, 60% made a contribution towards their mortgage arrears. 4% cleared their arrears immediately compared to 0.9% two years ago.

- 43% of mortgage defaulters who agreed to debt counselling in Q2 of 2012 paid back all or more than their monthly mortgage amount. Twelve months ago the figure stood at 37.4%.

- Out of all the households in the study who had fallen behind with their mortgage in the second three months of 2012, 73% accepted debt counselling. Twelve months ago the proportion was lower at 66.3%. When the UK economy was in recession at the end of 2008, the proportion was 52.8%.

- The number of cases where a mortgage arrears home visit resulted in no financial arrangement being reached 5.6% in the most recent period. This was higher than the previous quarter but lower than 12 months ago (5.9%).

Commenting on the latest findings of the survey, Niall Gilhooley, Chief Executive at Ascent, said: “Taking into account the levels of uncertainty in the economy and a fall in disposable income caused by falling wages and rising VAT, it is very pleasing and encouraging to see that homeowners are still more likely to accept a debt counselling visit and also pay off more of their arrears.

“Usually there is a close correlation between GDP and our DDP figure, but with such a rise in the latter during the last three months, this is difficult to detect. Once again it appears that despite financial hardship, families are doing all they can to hold on to their home.”

Home visits are carried out on behalf of most mortgage lenders after a household has defaulted on their mortgage. During the visit, or phone interview, counsellors discuss the outstanding arrears and aim to develop a sustainable and affordable payment plan for clearing the debt.