There were 87,930 homeowner mortgages in arrears in Q3 2023, 7% more than the previous quarter, according to UK Finance’s Mortgage arrears and possessions data for Q3 2023.
UK Finance’s latest data shows that the number of buy-to-let (BTL) mortgages in arrears was 11,540, a 29% increase during the same period.
The increases in arrears are driven by the combined impact of both cost-of-living pressures and higher interest rates.
In particular, interest rate pressures are felt more acutely in the BTL sector, where landlords may not be able to raise rents to cover the increases in their payments.
For comparison, in Q3 2009 the number of homeowner and BTL mortgages in arrears was 207,200 – over twice the 99,480 seen last quarter.
This reflects the benefits of lender stress tests carried out to ensure borrowers will be able to keep up with their mortgage payments, even if their interest rate rises above those in place when they first took out their mortgages.
Homeowner mortgages in arrears accounted for 1% of all outstanding residential properties with a mortgage. The figure for BTL mortgages is 0.57%.
UK Finance expects the combined number of homeowner and BTL mortgages in arrears to remain below one percent of the total number of mortgaged properties come the end of 2023.
630 homeowner mortgaged properties were taken into possession in the third quarter of 2023, 9% fewer than in the previous quarter.
450 BTL mortgaged properties were taken into possession during the same period, unchanged from Q2 2023.
Eric Leenders, managing director of personal finance at UK Finance, said: “Anyone worried about making their mortgage payments should contact their bank as soon as they can.
“All lenders have teams of experts ready to help anyone struggling with their mortgage payments with tailored support.
“The sooner you get in touch, the more support options your lender will be able to offer. What’s more, reaching out to your bank to find out what support is available won’t affect your credit score.”
Reaction:
Craig Fish, director at Lodestone Mortgages & Protection:
“This doesn’t make for great reading and shows the immense strain households are under. Landlords are having a particularly tough time of it based on this evidence.
“We are having more and more conversations with people who are experiencing rate shock.
“Households up and down the country are on a knife edge. Many are having to make adjustments to their mortgages to make them more affordable, such as extending the mortgage term.
“As a firm, we aren’t seeing many borrowers fall into arrears or, worse, face repossession yet, but that doesn’t mean it’s not happening across the rest of the UK.
“However, we are now starting to see lenders’ rates fall, and if this continues, especially at higher loan-to-values, it may be that fewer customers face difficulties going into 2024.”
Stephen Perkins, managing director at Yellow Brick Mortgages:
“This further jump in the arrears and repossession numbers shows how brutal things are right now for many homeowners.
“Despite some recent rate reductions, even the market-leading rates are 3% or more than the low rates homeowners will be leaving behind when their deals end.
“There are 1.6 million more mortgages ending in 2024 so we are only seeing the thin edge of the wedge especially given that increasing mortgage costs are only one part of the overall cost of living crisis already decimating household finances.
“This data is sadly going to get worse in the months ahead.”
Dan Osman, head of later life lending at UK Moneyman:
“This data sadly shows how the walls are increasingly closing in on many borrowers.
“In cases reminiscent of 2008, we are seeing a lot of older borrowers coming to us because they are under threat of repossession.
“The lack of compassion shown by some of the major banks is staggering. When challenged, some will admit to not having offered any support to the vulnerable.
“This is especially true in the case of widows who may never have had any involvement in the household finances and are now being left to deal with things for the first time.
“We are seeing people being referred to equity-release-only firms and being told they don’t have enough equity for a lifetime mortgage and not being offered any alternatives when there are many options out there including specialist 50+ interest only and repayment mortgages available up to 90.
“More joined-up working and consumer education is needed to avoid these blatant cases of foreseeable harm.”
Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial:
“Arrears have shot up recently as some battle their new, mega high mortgage payments. However, this is still the tip of the iceberg.
“Most of the pain is yet to be felt by many who haven’t yet come off their fixed rates. Also, many are clinging on by their finger tips and getting into arrears elsewhere.
“These desperate people will filter through to the numbers over the next six months and there will be a real human cost to these figures. 2024 is shaping up to be a year to forget.”
David Stirling, independent financial adviser at Mint Mortgages & Protection:
“People felt that low interest rates would go on forever. Sadly, they haven’t and this is now really biting borrowers, as we enter an uncertain era and one the banks really aren’t helping them with.
“Borrowers aren’t stupid and steering them towards locking into 5- or 10-year fixed rate deals to get better rates is leaving them feeling rather sour.
“With criteria for interest-only borrowing now so obscure and strict, it’s not really an option for your typical borrower who is struggling, so we are usually left to look at extending terms, sometimes up to age 80, or recommending total upheaval and downsizing to help cushion the blow of increased monthly payments.
“We can only hope that the predictions for next year and some lowering and stabilisation of rates will stop more people going to the wall.”
Riz Malik, founder and director at R3 Mortgages:
“There are two parts to the ticking mortgage time bomb, which this data shows is getting louder all the time.
“The first is those coming off ultra-low rates, the second is those at the end of their term on interest-only mortgages.
“With a flat housing market and soaring mortgage repayments, more are likely to fall into arrears very quickly.”
Patricia McGirr, chief marketing officer, Finanze Group:
“With each day that passes, more people are coming off low fixed rates onto far higher new rates and that’s against a backdrop of the cost-of-living crisis.
“As a result, thousands are finding themselves mortgage prisoners with few options to go elsewhere and often carrying a lot of unsecured debt on top. It’s taking its toll.
“For those small business owners who took bounce-back loans to keep them afloat during the pandemic, it’s a veritable tsunami.
“The waves keep coming and the water keeps rising. Worst of all, those whose debts are the worst get penalised by higher interest rates that simply compound their problem.
“Isn’t it time to rethink how we handle this? Debt help is out there but lenders need to do more or we may face widescale evictions and people whose credit profile will make it virtually impossible for them to get private sector tenancies.”
Justin Moy, managing director at EHF Mortgages:
“We have mostly seen clients pre-rate change, so the fall out from increased mortgage payments will still take some time to filter through, but I do expect to see more borrowers prioritising their monthly bills, and that will inevitably cause late or missed payments.
“Initially that may be utility bills before finance payments are at risk.
“Mortgage lenders will need to consider their criteria on late payments and be more flexible, otherwise a considerable amount of borrowers will end up in the specialist market, with higher rates not due to base rate pressures.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“Put into perspective the number of mortgages in arrears accounts for just 0.93% of all homeowner mortgages. However, the rate at which arrears is increasing is the worrying statistic that is unlikely to fall in any time soon.
“As worrying as this increase may be to many, the number of possessions fell. This shows the increased forbearance that lenders are showing to struggling borrowers.
“When you consider that lenders had to stress test borrowers up to eight per cent for almost all of the mortgages in existence today, the question is why is this happening?
“The answer, unfortunately, is most likely that the ultra-low interest environment that we have experienced over the last few years has led to a level of complacency.
“The rising cost-of-living and higher interest rates has come as a massive shock to many and budgeting for higher costs is not something borrowers have had to do for a very long time.
“No-one, especially lenders, wants to repossess homes. It’s expensive, horribly upsetting and disruptive.
“So, lenders will again be looking to do everything they can to avoid taking more homes into possession in the coming months.”
Charlotte Nixon, mortgage expert at Quilter:
“Navigating through the financial headwinds of the current economic climate, homeowners and renters are confronting stark realities, with increasing legal actions reflecting a surge in housing insecurity.
“Mortgage possession actions, indicative of lenders seeking to recover properties from borrowers who have fallen behind on payments, have escalated.
“Specifically, mortgage possession claims, which are initial filings by lenders to obtain court permission to foreclose on properties, increased by 14% to 4,185.
“This uptick is a clear signal of the rising financial pressure on homeowners. Meanwhile, mortgage possession orders, the court’s judgment that lenders may proceed with foreclosure, have risen by 18% to 2,923, underscoring the gravity of the situation for those struggling to pay their mortgages.
“However, in a contrasting trend, actual repossessions, have decreased by 18% to 622.
“This suggests some homeowners are finding ways to avert the final act of losing their homes, possibly through renegotiated payment arrangements or other forms of assistance.
“Potentially initiatives like the Mortgage Charter have helped to decrease repossessions providing a sliver of hope that there may be a growing cushion against the ultimate displacement from one’s home, despite the uptick in initial legal proceedings.
“Renters are not faring much better, with landlord possession actions indicating a more straightforward trajectory towards housing insecurity.
“Landlord possession claims have seen a significant upswing of 19% to 24,938, and repossessions executed have climbed by 11% to 6,080.
“These numbers are not just statistics; they represent individuals and families grappling with the possibility of losing their homes amidst the crunch of higher rents and higher bills.
“These figures represent the heightened financial distress that is becoming increasingly widespread across regions, with possession claims rising in every area. London stands out with the highest rates of both private and social landlord claims, a testament to the acute cost pressures in the capital.
“It is crucial for those at risk of falling behind on mortgage or rent payments to seek advice, engage with financial support services, and explore every option to maintain their housing security. The message is always don’t bury your head in the sand; seek help.”
Katie Pender, managing director of Target:
“Unfortunately, these latest figures show that the rate of arrears has climbed steeply, particular for buy-to let mortgages.
“Given the increase in borrowing costs and the rising cost of living, these figures are not surprising.
“But there is some good news in that overall possessions seem to be on the decline. This could be because lenders are coping well and have implemented extensive forbearance measures, and lenders opting into the Mortgage Charter too.
“However, arrears figures show landlords are having a particularly tough time, largely because many are unable to offset mortgages costs when they are being hit by interest rate rises. As a result, some are leaving the market, with much-needed rental properties disappearing.
“With the news every day of people not being able to get on the housing ladder or unable to afford rents, and a shortage of places for people to live, it’s time for a significant overhaul of how the market works.
“The Autumn Statement in a few weeks is an opportunity for much-needed Government intervention in what is an increasingly broken market. Whether the Chancellor will listen to calls from the industry is another matter.”
Arjan Verbeek, founder & CEO, Perenna:
“The increase in mortgage arrears and possessions highlights the current financial instability many homeowners are facing.
“The data underlines just how critical stability and predictability are when taking out your mortgage.
“The current options available aren’t fit for purpose in this volatile market and it’s time that lenders, regulators and governments come together to find a solution. If they don’t, we face creating a new generation of mortgage prisoners.
“Long-term fixed rate mortgages offer borrowers a vital shield against economic fluctuations.
“In a climate where possession and arrears are on the rise, homeowners with fixed rate mortgages are better insulated from changes in interest rates.
“Homeowners can plan their budgets with confidence, knowing their mortgage payments will remain constant.
“Long-term fixed rate mortgages provide financial security and the much-needed peace of mind for homeowners to be able to weather the current economic storm.”
