Mortgage arrears rose in fourth quarter of 2023

1st February 2024

New research by Pepper Advantage showed a 29.5% annual jump in arrears across it’s 100,000+ residential mortgage portfolio in the fourth quarter (Q4) of 2023, the figures were 5.7% higher than the previous quarter, to reach a new post-financial crisis high.

The growth in the arrears rate follows successive increases in the percentage of mortgages that experienced a Direct Debit Rejection (DDR), where a direct debit instruction is processed by a creditor but there are insufficient funds in the borrower’s account. Pepper Advantage’s Q4 DDR rate grew 30.8% year-on-year. This increase is mirrored by ONS data, where the DDR rate for all credit payments across the UK grew 15% in December 2023 compared to December 2022.

Pepper Advantage expects macroeconomic pressure on borrowers to continue to impact arrears in 2024. Inflation unexpectedly rose in December, underlining compounding pressures on households that are navigating both high living costs and elevated interest rates. Google Trends data shows that searches for “Can’t afford mortgage” increased 200% in 2023 compared to 2021, with a notable uptick in December 2023.

Breaking down the arrears rate by product type, region and age reveals groups that are under particular stress, residential mortgage arrears grew 5.6% compared to Q3 and 29% year-on-year.

The percentage of variable rate mortgages in arrears percentage grew 5.7% quarter-on-quarter and 29.6% year-on-year. The percentage of fixed mortgages in arrears grew 13% quarter-on-quarter and 65.7% year-on-year from a very low base.

Regionally, the North East, Yorkshire and Humberside, the North West, and the West Midlands had the highest absolute rate of arrears in the UK. The South East, South West and Greater London had the lowest.

Every age group experienced growth in the arrears rate that ranged from 0.3 to 0.8 percentage points quarter-on-quarter. Those aged 51-60 and 60+ showed the highest level of arrears, followed by those aged 41-50.

The percentage of residential mortgages that experienced a DDR grew 6.9% quarter-on-quarter and 30.8% year-on-year, marking a more dramatic increase compared to Q3.

Gerry McHugh, Chief Executive Officer, Pepper Advantage UK, said “We are continuing to support customers during this difficult time as the increasing cost-of-living and persistent inflation heaps more pressure on UK borrowers. The continued growth of DDRs – which had previously begun to slow – unfortunately suggests that we are not out of the woods. We are investing in our real-time credit data for times like these, so we can arm clients with the information they need to provide the right support to the borrowers.”