Interactive Investor

Mortgage stress at its highest level since 2008

interactive investor comments on UK Finance mortgage arrears and repossessions data.

10th August 2023 11:02

by Myron Jobson from interactive investor

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Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The number of people entering and plunging deeper into mortgage arrears ticked higher in the second quarter of this year as the uptick in mortgage rates devastated budgets already squeezed by broader cost-of-living pressures. The harsh reality is the number of borrowers at risk of mortgage stress is at its highest level since 2008 – and the situation could worsen if inflation doesn’t play ball and remains at a high level.

“History has shown that the uptick in home repossessions typically coincide with increases to the base rate. While higher monthly repayments could lead to a rise in mortgage arrears, the current low level of unemployment could slow the rise in repossessions. However, with the cost of housing on the up, and many homeowners struggling to repay their mortgage, families [are] wary that something like a sudden illness or job loss, could leave them homeless.

“Lenders are preparing for a tsunami of customers seeking assistance with their home loans. Most lenders have agreed to a set of standards, under the Mortgage Charter, to help borrowers struggling with higher mortgage rates and broader cost-of-living pressures, including lower monthly costs by switching to interest-only payments for six months, or extending a mortgage term. This initiative could help prevent arrears and defaults from rising to dangerous levels that threaten a property crash or financial stability.”

Worrying signs for renters

“The uptick in buy-to-let arrears is a worrying sign for the rental market. With mortgage rates creeping higher in the current quarter, the worry is there will be a new wave of landlords facing financial strain in the near future when they remortgage. For many landlords, the uptick in mortgage costs is the final straw after years of being squeezed by higher taxes.

“Landlords who are struggling financially due to mortgage arrears might try to offset their financial quagmire by raising the rent for their tenants. Mortgage arrears could also potentially lead to neglect of property maintenance or other issues that could reduce the quality of life for renters.

“Ultimately, if struggling landlords fail to keep on top of their finances, the rental property could be repossessed, forcing their tenant to find new accommodation, potentially at short notice, causing disruption to their living arrangements and potential financial strain.”

Key points:

New data by UK Finance found:

  • There were 81,900 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, 7% greater than in the previous quarter.
  • Within the total, there were 30,940 homeowner mortgages in the lightest arrears band (representing between 2.5 and 5% of the outstanding balance). This was 12% greater than in the previous quarter.
  • There were 8,980 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, 28% greater than in the previous quarter.
  • Within the total, there were 4,810 buy-to-let mortgages in the lightest arrears band (representing between 2.5 and 5% of the outstanding balance). This was 41% greater than in the previous quarter.
  • Mortgages in arrears accounted for 0.93% of all homeowner mortgages outstanding, and 0.44% of all buy-to-let mortgages outstanding in the second quarter of 2023.
  • 610 homeowner-mortgaged properties were taken into possession in the second quarter of 2023, 19% fewer than in the previous quarter.
  • 440 buy-to-let mortgaged properties were taken into possession in the second quarter of 2023, 7% greater than in the previous quarter.

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