Mortgage arrears increase by a third

13th September 2023

Latest Bank of England figures have indicated that the value of mortgage arrears jumped by almost a third (29%) in April-June compared with the same period in 2022, with the total value of outstanding mortgage debt at £16.9 billion, the highest total since 2016.

New arrears cases equated to 16% of the total outstanding mortgage debt in April to June, with the quarter-on-quarter jump in the proportion of mortgages in arrears the highest since 2018.

Mortgage arrears are based on figures showing the number of borrowers failing to make payments equivalent to at least 1.5% of the outstanding mortgage balance or where the property is in possession.

Mortgage lending was also hit in the second quarter with gross advances falling by £6.3 billion to £52.4 billion. Year on year, mortgage lending slumped by almost a third, to the lowest level since the worst of the Covid-19 collapse in lending in the second quarter of 2020.

Commenting on the figures, Myron Jobson, Senior Personal Finance Analyst, interactive investor, said “These figures paint a of picture of a disjointed mortgage marketplace reeling from spiralling repayment costs. Although the outstanding value of all residential mortgage loans was marginally higher at the end of 2023 Q2 compared to a year earlier, it represented the largest decrease on the previous quarter since reporting began in 2007.

“High mortgage rates continued to dampen enthusiasm for property in Q2, with gross mortgage advances and new mortgage commitments at their lowest observed levels since the second quarter and the third quarter of 2020, respectively.”

“Outstanding mortgage balances with arrears have also ticked higher – although it only accounts for just over 1% of outstanding mortgage balances. The upward trend is worrying but not unexpected. History has shown that the uptick in home repossession typically coincide with increases to the base rate. While higher monthly repayments could lead to a rise in mortgage arrears the record-breaking wage growth run and relatively low level of unemployment could slow the rise in repossessions. However, with the cost of housing on the up, many homeowners struggling to repay their mortgage of families would be wary that something like a sudden illness or job loss, could leave them homeless.”

“There are signs that the mortgage crisis which has stopped many from participating in the property market this year may be turning a corner. Average mortgage rates continue to fall from lofty heights seen in July following sizeable falls in inflation, which could mean that interest rates might not peak as high as feared. This is a confidence booster for those looking to take out a mortgage soon.”

“While cuts in mortgage rates will be welcome by would-be buyers and homeowners alike, in they still face much higher monthly repayments than previous years – and a return of ultra-low mortgage rates isn’t forthcoming.”