Interactive Investor

Rising borrowing costs and rampant inflation hits homeowners hard

18th May 2023 12:39

by Myron Jobson from interactive investor

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interactive investor comments on the latest UK Finance mortgage arrears figures.

Stagflation fear 600

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Homeowners have been hit by a double whammy of rising borrowing costs and rampant inflation, which threatens to lay waste to finely tuned budgets.

“The golden era of low mortgage rates has come to an end following a rapid rise in interest rates to combat red hot and sticky inflation. Almost two million mortgage holders on tracker rates have felt the brunt of each of the 12 consecutive base rate hikes as they came. Meanwhile, the uptick in mortgage rates is a kick in the teeth for mortgage holders who have come off a fixed-rate deal in recent history.

“There could unfortunately be a new wave of borrowers falling behind on repayments in the near future, as there are around 700,000 borrowers with fixed-rate mortgages - most of which were set at interest rates below 2% - maturing in the second half of the year alone. However, the current low level of unemployment could slow the rise in mortgage arrears and repossessions.

“The fact that buy-to-let mortgages in arrears are increasing at a faster rate than residential mortgages shows that landlords have not been immune to the cost-of-living squeeze on budgets. Recent research by the ONS* revealed that tenants are 4.4 times as likely to be experiencing financial hardship compared to homeowners. Missed or delayed rent payments could leave many smaller landlords in a financially precarious position. This cohort may have also seen their profit margins recede dramatically after coming off a fixed-rate mortgage because of heightened mortgage costs.

“Those struggling to keep up with mortgage repayments should contact their lender as their first port of call to explore their options and support available. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all your options.”

Key points

  • There were 76,630 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2023, 2% greater than in the previous quarter.
  • There were 7,030 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2023, 16% greater than in the previous quarter.
  • 750 homeowner mortgaged properties were taken into possession in the first quarter of 2023, 50% greater than in the previous quarter.
  • 410 buy-to-let mortgaged properties were taken into possession in the first quarter of 2023, 28% greater than in the previous quarter.

Source: UK Finance

Notes to editors: *Source: ONS

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