Mortgage arrears increase

19th May 2023

Data from UK Finance shows that the number of households falling into arrears increased in Quarter 1 of 2023.

The figures showed that were 76,630 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2023  2% greater than in the previous quarter.

The figures also showed that there were 7,030 buy-to-let mortgages in arrears of 2.5 per cent or more of the outstanding balance in the first quarter of 2023, 16 per cent greater than in the previous quarter.

750 homeowner mortgaged properties were taken into possession in the first quarter of 2023, 50 per cent greater than in the previous quarter with 410 buy-to-let mortgaged properties were taken into possession in the first quarter of 2023, 28 per cent greater than in the previous quarter.

UK Finance Director of economic insight and research Lee Hopley said “The level of mortgages in arrears rose marginally in the first quarter of this year as the increased cost of living weighed on households’ incomes. However, the increase is small and the outright level is still lower than previous years”.

“While the number of repossessions increased, it’s important to note that this is from a very low base as historic cases make their way through the courts. The total number of possessions remains significantly below the levels seen prior to the pandemic”.

Myron Jobson, Senior Personal Finance Analyst, Interactive Investor, said “Homeowners have been hit by a double whammy of rising borrowing costs and rampant inflation which threatens to lay waste to finely tuned budgets.”

“The golden era of low mortgage rates has come to an end following a rapid rise in interest rates to combat red hot and sticky inflation. Almost two million mortgage holders on tracker rates have felt the brunt of each of the 12 consecutive base rate hikes as they came. Meanwhile, the uptick in mortgage rates is a kick in the teeth for mortgage holders who have come off a fixed rate deal in recent history.”

“There could unfortunately be a new wave of borrowers falling behind on repayments in the near future, as there are around 700,000 borrowers with fixed rate mortgages – the majority of which were set at interest rates below 2% – maturing in the second half of the year alone. However, the current low level of unemployment could slow the rise in mortgage arrears and repossessions.”

“The fact that buy-to-let mortgages in arrears are increasing at a faster rate than residential mortgages shows that landlords have not been immune to the cost-of-living squeeze on budgets. Recent research by the ONS* revealed that tenants are 4.4 times as likely to be experiencing financial hardship compared to homeowners. Missed or delayed rent payments could leave many smaller landlords in a financially precarious position. This cohort may have also seen their profit margins recede dramatically after coming off a fixed rate mortgage because of heightened mortgage costs.”

“Those struggling to keep up with mortgage repayments should contact their lender as their first port of call to explore their options and support available. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all of your options.”

Phoebus Software, Chief Revenue Officer Adam Oldfield  said “Unfortunately, with around 370,000 borrowers coming off fixed rate deals between April and June (ONS), the likelihood is that this trend will continue and is almost certainly going to get worse.  This is especially true if, as many expect, the Bank of England continues to put the base rate up.”

“Once again there will be a great responsibility for lenders to identify borrowers that may be getting into difficulty and manage the situation with care.”

“With Consumer Duty rules coming into force at the end of July that responsibility becomes more onerous, and every lender will need to ensure they have all their systems aligned to ensure the best outcomes for their borrowers.”