The proportion of mortgage balances in arrears increased to the highest level in six years in Q3, with Bank of England data showing that the proportion of total loan balances with arrears increased from 1.02% to 1.14%, quarter-on-quarter. This is the biggest proportion since Q2 2017.
The latest statistics show that the value of outstanding mortgage balances with arrears increased by 11.4% to £18.8 billion n. Year-on-year, this marked a 44% increase. 15.8% of total outstanding balances were in arrears – down 0.3% in a quarter but 5.1% higher than a year earlier.
The data also shows that the value of new mortgage commitments, which covers lending agreed to be advanced in the coming months, fell by 16.5% from Q2, coming in at £51.5 billion. This was 41.4% down on a year earlier. The £62.2 billion borrowed over the quarter was up 18.6% from the previous three months (the first quarterly rise since 2022) – but still down 27.6% from a year earlier. £51.5 billion of new mortgages were approved for the coming months – down 16.5% in a quarter, and 41.4% in a year.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Arrears have reared their ugly heads, with total mortgage arrears up over 10% in a quarter and rising by almost half in a year. As a proportion of the total amount lent in mortgages, it hasn’t been this high since the middle of 2017.”
“It’s hitting people with bigger mortgages harder, because while the total amount in arrears is soaring, the total number of borrowers was up less dramatically over the year – and actually fell over the quarter. It reflects how those who stretched their finances to get onto the property ladder, or trade up, are paying a horrible price for it now as their mortgage deals come to an en”d.
“The pain is far from over. Given the predominance of fixed rates in the market, the squeeze on our finances caused by sharply higher rates isn’t going to come as a short, sharp shock, but as a nasty squeeze on a small section of the mortgage market each month, over a horribly prolonged period of time. With so many people moving from a fixed rate of less than 2% to around 6%, it’s no surprise that so many are hitting a brick wall financially.”
“New mortgage borrowing during the autumn bounced back a bit from the summer, as mortgage rates gradually fell during the period. Borrowing was still way lower than a year ago, but not quite as dire as the summer – when mortgage rates hit a peak. Unfortunately, mortgage approvals for the coming months told a less upbeat story, as they fell again during the quarter – reflecting slow sales we’ve seen this winter.”
“Higher rates are likely to continue to take a toll on buyer enthusiasm. UK Finance forecast yesterday that next year we’ll see mortgage lending for purchases down 8% from 2023. It would mean the sluggish property market is here to stay, which would bring more pain for sellers whose properties have been stuck on the market for months. Whether this pushes prices much lower will depend on how sellers react. If they take their homes off the market, a shortage of available property could put a floor under prices. However, the Office for Budget Responsibility isn’t convinced this will keep prices from dropping – it’s expecting them to fall 4.7% in 2024.”
“Buyers who’ve been postponing a purchase while they wait for the dust to settle might want to take a step back and consider how long they will be in this position for. If they decide to hold off for 12 months or longer, it gives them an opportunity for their money to work harder. They could consider fixing their savings for a year in return for a higher rate. At the moment you can fix for more than 5.5% – and that’s guaranteed all year – even if the Bank of England starts cutting rates.”