Pepper Advantage, a global credit intelligence company, has revealed a 23.3% increase in arrears across its UK residential mortgage portfolio for Q3 2023. This increase is the most significant since the financial crisis.
The rise in arrears correlates with a surge in Direct Debit Rejections (DDR), where attempts to collect payments fail due to insufficient funds in borrowers’ accounts. Q3’s DDR rate increased by 19.3% from the previous year, a deceleration from April 2023’s year-on-year jump of 33.3%.
Macroeconomic factors are projected to keep influencing arrears into Q4 and next year. The Bank of England’s latest Credit Conditions Survey supports this outlook, anticipating an increase in defaults. It suggests the economy has yet to feel the full impact of recent interest rate hikes.
With UK households facing growing unpaid bills and shrinking savings, the rate of growth in arrears may not have peaked. Among the data, fixed rate mortgage arrears grew by 15.5% quarterly and 53.7% annually. In contrast, variable rate mortgage arrears rose by 5.6% from the last quarter and 29.1% year-on-year. Presently, one in four variable rate mortgages in Pepper Advantage’s portfolio is in arrears.
Regionally, the North East, Yorkshire, Humberside, and the North West are the hardest hit with arrears rates of 9% to 11%. The South East, South West, and Greater London report the lowest rates at 5-6%. Arrears grew across all age groups, with those aged 51-60 and 60+ showing the most significant increases.
Gerry McHugh, chief executive officer at Pepper Advantage UK, said: “We are supporting customers during this difficult time as the increasing cost-of-living, reduced household savings and rising interest rates combine to put pressure on borrowers.
“Unfortunately, we expect the situation to get worse before it gets better. Our real-time credit intelligence gives us and our clients the information to provide appropriate support to the borrowers who need it, including measures such as interest rate reductions or extending mortgage term lengths.”
