Value of mortgages in arrears hits £21.9bn

New Bank of England data shows that the value of outstanding mortgages in arrears hit £21.9 billion in the second quarter of this year. This marks a 32% increase on Q2 2023 and is the highest total since 2014. 

On a quarterly basis, the value of outstanding mortgage balances with arrears increased by 2.9% compared to Q1 while the proportion of loans with arrears also increased in Q2, rising to 1.32% from 1.29%. Despite the rise in value, the number of new arrears cases has decreased, with figures showing a 5.3 percentage point drop compared to last year.

The outstanding value of all residential mortgage loans increased by 0.4% from the previous quarter to £1,660.9 billion, and was 0.3% higher than a year earlier 

The data also showed that the value of new mortgage commitments (lending agreed to be advanced in the coming months) increased by 11.3% from the previous quarter to £66.9 billion, and was 12.5% greater than a year earlier.

Melanie Spencer, Sales and Growth Lead at Target Group, said “It’s clear from today’s figures that borrowers have responded well to the positive changes in the market, as the value of both gross mortgage advances and new mortgage commitments increases. Growing competition among lenders off the back of movement on swap rates and the bank base rate has clearly helped put a potential move back on the radar for many people.

“While it is positive to see a drop in new arrears cases, mortgage balances with arrears continues to increase in value, while total arrears remain far higher than 12 months ago. Combine this with a rise in high LTI lending and an increase in higher LTV lending – albeit only marginally – and there’s no question that lenders will need to stay close to number of borrowers. A sensible approach to managing the loan lifecycle remains key, as well as both early remediation strategies and identifying vulnerable customers – particularly as Consumer Duty remains a priority for the regulator. This will continue to be the case even as the picture for the market and wider economy seems to improve.”

Tom Cuppello, Director of Risk at Broadstone, said “The impacts of the significant increases to mortgage rates continue to reverberate around the secured lending market. As more borrowers came off cheap fixed rates over the past couple of years and faced a significant increase in their mortgage payments, it was inevitable that we would see a rise in arrears flowing through the system.

“Nearly two years on from the ill-fated Mini Budget, we are likely to be nearing the tail end of homeowners facing these issues, especially given the length of time to prepare and the recent decline in rates. This is evidenced in the slowdown in arrears volumes and falling numbers of new arrears cases.

“Yet there is no room for complacency among lenders who must continue to ensure they are supporting the long-term financial interests of their customers, especially as the economic and fiscal environment remains volatile. The Government’s Mortgage Charter, the advent of Consumer Duty and additional FCA rules demonstrate that the legislative direction of travel is towards protecting borrowers in uncertain economic times.”

Simon Webb, Managing Director of capital markets and LiveMore said “The Bank of England’s latest mortgage statistics reflect a modest but important growth in both mortgage lending and commitments, with gross mortgage advances rising by 16.7% from the previous quarter.

“However, amidst this growth, we also see challenges, particularly with the increased proportion of lending to high loan-to-income borrowers and the rising value of mortgage balances with arrears, which has reached its highest point since 2016.

“As the market evolves, ensuring older borrowers have access to tailored financial solutions is more important than ever. Our focus is on supporting later life borrowers who often struggle to navigate the complexities of available products. Innovations like LiveMore’s Matching Engine simplify this process for intermediaries by returning all relevant product options based on individual client details, including alternatives if needed, and calculating maximum borrowing potential based on income and expenditure, in order to get the best outcome possible for clients.”