Home Money Homeowners in mortgage arrears up 25% in a year as rate increases bite

Homeowners in mortgage arrears up 25% in a year as rate increases bite

by Elijah
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The number of defaulters in paying their mortgages increased by 5,750 in the last three months of 2023

The number of homeowners in arrears on their mortgages has risen 25 per cent over the past year, new data shows.

Mortgage arrears for homeowners rose by 5,750 to a total of 93,680 in the final three months of 2023, according to UK Finance, representing a 7 per cent increase compared to the previous three months.

Meanwhile, default buy-to-let mortgages rose 18 per cent to 13,570 in the final three months of last year.

This means arrears on buy-to-let mortgages are rising by an alarming 124 per cent year on year.

The number of defaulters in paying their mortgages increased by 5,750 in the last three months of 2023

Mortgage arrears occur when people fall behind on their mortgage payments.

An estimated 1.5 million homeowners and 230,000 buy-to-let mortgage holders have fixed-rate mortgage deals due to end this year.

Last year, a succession of base rate increases and disappointing inflation figures saw average two-year fixed mortgage rates hit a high of 6.86 per cent in the summer, according to Moneyfacts, while five-year fixed rates years reached 6.37 percent.

Although average two-year fixed mortgage rates have fallen to 5.58 percent, while five-year fixed rates are now at 5.22 percent, they are still much higher than the averages of 2 to 2.5 percent. percent recorded before interest rates soared in 2022.

Lewis Shaw, mortgage adviser at Shaw Financial Services, said: “It is worrying to see the data on mortgage arrears continuing to rise and sadly this is a direct consequence of higher mortgage rates, the cost of living crisis and , for many years, the stagnation of wages. .’

Hannah Bashford, director at mortgage broker Model Financial Solutions, added: “These statistics will be a stark reminder of the financial strain homeowners and landlords are still under.

“There will always be a delay with this data, since the Mortgage Letter has existed and people will have been using their savings to continue making their payments, but as those savings run out or the end of the six months approaches, people Those who are struggling can fall into default.

“We certainly haven’t seen the end of this and I fear there will be more to come.”

Recovery numbers remain low

Non-performing mortgages currently represent 1.07 per cent of all outstanding homeownership mortgages and 0.69 per cent of all outstanding buy-to-let mortgages.

Furthermore, the number of repossessions remains very low, according to UK Finance.

A repossession is when a lender takes control of a property after a borrower has defaulted on their mortgage, usually to sell it. This is a last resort after other options have been explored.

In both the buy-to-let and homeowner mortgage sectors, a total of 1,040 homes were repossessed in the last three months of 2024.

This is down from the nearly 2,000 executions recorded in the last three months of 2019 before the pandemic.

Scott Taylor Barr, senior adviser at Barnsdale Financial Management, says: ‘Context is key when analyzing statistics. After all, if one person was seized in 2022 and two in 2023, that represents a 100 percent increase.

‘According to FCA figures for 2023, the UK’s total mortgage debt is £1,654.3 billion. Finder mortgage statistics show the average mortgage in the UK is £189,503.

“That means the total number of mortgaged properties in the UK should be around 8.7 million homes.

“So even with this increase, only 1.23 per cent of total UK mortgages are in arrears and from a macroeconomic point of view this is a minuscule amount.”

Ultimately, lender stress tests have helped ensure that borrowers can stay current on their mortgage payments, even when their interest rates rise above those in effect when they first took out their mortgages. .

Although stress testing guidelines were supposedly relaxed in 2022, when the Bank of England removed the requirement for lenders to carry out affordability stress tests.

Previously, this meant borrowers had to prove they could still afford their mortgage payments if their mortgage rate rose 3 percent above their lender’s standard variable rate.

Delinquent mortgages represented 1.07 percent of all outstanding mortgages.

Delinquent mortgages represented 1.07 percent of all outstanding mortgages.

Another element of mortgage affordability guidelines that has been maintained is the loan-to-income ratio.

This is a limit on the amount banks can lend based on the borrower’s annual income. They may offer some loans above this level, but there are strict restrictions on how many.

As a general rule, most people will have been limited to a maximum of 4.5 times their income when they took out their mortgage.

What to do if you fall behind on your mortgage payments

Eric Leenders, managing director of personal finance at UK Finance, said: “The number of mortgage holders in arrears, although still low, continues to rise as the cost of living and high interest rates take their toll on households. .

‘Importantly, there is help available for anyone concerned about their finances; Contact your lender as soon as possible to discuss available support options.

‘Lenders have teams of experts trained and ready to help. Contacting your lender to find out what support is available will not affect your credit score.’

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