Lenders expected a further 1.5% of borrowers on payment holidays to be able to make interest-only payments.
Research by the Intermediary Mortgage Lenders Association (IMLA) has found that concerns over a potential cliff edge come 31 October may be exaggerated, with lenders predicting only between 0.5% and 5% of those with payment holidays coming to an end will enter arrears.
Lenders said they expected a further 1.5% of borrowers on payment holidays to be able to make interest-only payments, meaning a large majority of borrowers are likely to successfully return to repaying their mortgage.
Projections from the Bank of England have also shown that the number of furloughed workers is expected to fall to one million in October, far below the 9.4 million employees registered in June 2020.
The fall is attributed to the reopening of many sectors of the economy and employers now having to meet some of the costs of furloughed workers.
However, the report acknowledges that the true impact of the COVID-19 crisis will only be known once emergency support measures including the Coronavirus Job Retention Scheme are wound down over the coming months.
Fears about the state of the economy later this year and into 2021 have also led to restrictions on lending, particularly high loan-to-value (LTV) mortgages.
While these changes by lenders are understandable, they have the potential to exacerbate a downturn in the housing market by limiting options for first-time buyers.
The report also said that the government will need to avoid a sharp end to the stamp duty exemption in March 2021, with the potential for a further cliff edge for the housing market next year that could delay lender decisions to normalise criteria.
Kate Davies (pictured), executive director of IMLA, said: “There have been some major concerns that Britain’s economy and the mortgage market could face a cliff edge when the furlough and payment holiday schemes conclude at the end of October, but this latest report from IMLA suggests that the impact might be less severe than anticipated.
"The mortgage market has remained strong and resilient in the face of COVID-19, and figures suggest that most borrowers will return from payment deferrals with little or no difficulty.
"The government’s latest measures to cut stamp duty is also likely to have sparked further demand in the housing market.
“That said, the UK’s economic recovery from coronavirus is still far from assured.
"While the stamp duty exemption will provide a boost, the government will need to be aware of the risk of another potential cliff edge for the housing market next March and they may even want to consider extending or phasing out the stamp duty holiday.
"Lenders are also well aware of the challenges facing consumers across the country, including first-time buyers, and they are eager to return to high loan-to-value mortgages as soon as it is prudent to do so.”
