The number of homeowners in mortgage arrears has increased 25 per cent over the last year, new data has shown.
Homeowner mortgages in arrears increased 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 when compared to the previous three months.
Meanwhile, buy-to-let mortgages in arrears rose by 18 per cent to 13,570 in the final three months of last year.
This means buy-to-let mortgage arrears is up by an alarming 124 per cent year-on-year.
Number of people in arrears on their mortgage increased by 5,750 in the final three months of 2023
Mortgage arrears are when people fall behind on their mortgage repayments.
An estimated 1.5 million homeowners and 230,000 buy-to-let mortgaged landlords have fixed-rate mortgage deals that are due to end this year.
Last year, a succession of base rate hikes and disappointing inflation figures saw average two-year fixed mortgage rates reach a high of 6.86 per cent in the summer, according to Moneyfacts, while five-year fixed rates hit 6.37 per cent.
Although average two-year fixed mortgage rates have fallen to 5.58 per cent while five-year fixes are now at 5.22 per cent, they remain a lot higher than the 2-2.5 per cent averages recorded prior to interest rates rocketing upwards in 2022.
Lewis Shaw, a mortgage advisor at Shaw Financial Services said: ‘It’s worrying to see mortgage arrears data continue to rise, and unfortunately, this is a direct consequence of higher mortgage rates, the cost of living crisis and, for many years, stagnating wages.’
Hannah Bashford, director at mortgage broker Model Financial Solutions added: ‘These statistics will be a stark reminder of the financial stress homeowners and landlords are still under.
‘There is always going to be a lag with this data as there has been the Mortgage Charter and people will have been using their savings to keep making their repayments but as those savings dry up or the end of the six months nears, people who are struggling may fall into arrears.
‘We certainly haven’t seen the end of this and I fear there will be more to come.’
Repossession figures remain low
Mortgages in arrears currently account for 1.07 per cent of all homeowner mortgages outstanding, and 0.69 per cent of all buy-to-let mortgages outstanding.
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 in order to sell it. This a last resort after other options have been explored.
Across both the buy-to-let and homeowner mortgage sector there were a total of 1,040 homes repossessed in the final three months of 2024.
This is lower than the almost 2,000 repossessions recorded in the final three months of 2019 before the pandemic.
Scott Taylor Barr, principal advisor at Barnsdale Financial Management says: ‘Context is key when looking at statistics. After all, if one person was repossessed in 2022 and two people in 2023, that’s a 100 per cent increase.
‘According to the FCA figures for 2023 the total UK mortgage debt is £1,654.3 billion. Finder’s mortgage statistics show the average UK mortgage is £189,503.
‘That means that 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 viewpoint that’s a tiny amount.’
Ultimately, lender stress tests have helped ensure that borrowers are able to keep up with their mortgage payments, even when their interest rates rise above those in place when they first took out their mortgages.
Although stress test guidelines were supposedly relaxed in 2022 when the Bank of England dropped its requirement for lenders to carry out affordability stress testing.
This previously meant borrowers had to prove they could still afford their mortgage repayments if their mortgage rate was to increase to 3 per cent above their lender’s standard variable rate.
Mortgages in arrears accounted for 1.07 per cent of all homeowner mortgages outstanding
Another element of the mortgage affordability guidelines that has been kept on is the loan-to-income ratio.
This is a cap on the amount banks can lend based on the borrower’s annual income. They are able to offer some loans above this level, but there are tight restrictions on how many.
As a general rule of thumb, most people will have been limited to a maximum of 4.5 times their income when they took out their mortgage.
