More Mortgage Info
Mortgage arrears and possessions
statistics - information note
For information, this note explains why we now focus primarily on the “percentage of balance” arrears
measure rather than the “number of months” measure.
The two different measures of mortgage arrears
We publish two different measures of mortgage arrears:
One reports the number of households more than 3 months (or 6 months, or 12 months) in arrears. But, for
the reasons we explain below, at the moment this measure is problematic when trying to make historical
The other measure records the number of households whose arrears total 2.5% or more (or 5%, or 7.5%, or
10%) of the total outstanding balance on their mortgage. We believe this is a better measure for making
What’s wrong with the months in arrears measure?
To calculate the number of months in arrears, we simply divide the accumulated arrears by the current
monthly payment. So, as interest rates fall, the same value of accumulated arrears represents a higher
number of monthly payments. Because official interest rates have fallen so far and so fast, beginning 2008
at 5.5% but now standing at 0.5%, the effect over the course of 2008/2009 is particularly pronounced.
For example, a borrower with a £100,000 interest-only mortgage might have been paying a rate of around
7.5% at the beginning of 2008, making their contractual monthly payment £625. But by the spring of this year,
the same borrower might have seen their rate fall to 4.5%, with their contractual payment only £375.
If this borrower fell £1,500 behind on their mortgage, at the beginning of 2008 this would have been equal to
2.4 months arrears. But by the spring of this year, £1,500 would equate to 4 months arrears.
However, using the “percentage of balance” figure, the borrower would be 1.5% in arrears in either period.
Because there are many households with a small amount of arrears, and fewer households with large
amounts of arrears, lower mortgage rates tend to inflate the reported number of arrears cases in most
Although this doesn’t make the number of months measure “wrong”, it is very important to be aware of the
artificial impact - caused purely by this arithmetic effect - on the reported numbers during a period of sharply
falling mortgage rates.
The table below shows some further examples of the effect, on both an interest-only and a repayment
mortgage (note that the impact is different for these different mortgage types).
Illustration of how changing interest rates affect reported arrears, a 25-year £100,000 mortgage
currently £2,500 in arrears
Interest only mortgage Repayment mortgage
Mortgage rate Monthly payment, £ Number of months Monthly payment, £ Number of months
represented by represented by
£2,500 arrears £2,500 arrears
7.5% 625 4.0 748 3.3
6.0% 500 5.0 652 3.8
4.5% 375 6.7 562 4.4