UK mortgage arrears have hit a seven-year excessive within the last quarter of 2023, in keeping with Bank of England information, which reveals the affect of excessive borrowing prices on family funds.
The proportion of whole mortgage balances with arrears rose to 1.23 per cent within the fourth quarter final yr, up from 1.12 per cent within the earlier three months, figures launched on Tuesday confirmed.
“This is an inevitable consequence of the recent pressure on household incomes during a period of elevated mortgage rates,” mentioned Lucian Cook, director of Residential analysis at Savills.
The Bank of England has elevated charges from a historic low of 0.1 per cent to the present 5.25 per cent over the previous two years. The rising cost of borrowing has led to a cooling within the demand for housing as extra individuals wrestle to fulfill their month-to-month funds.
Karen Noye, mortgage skilled at Quilter, mentioned the massive improve in mortgage charges previously two years was “really starting to bite for some borrowers and this is unfortunately causing them to fall into arrears as they simply can’t afford to keep up with their increased payments.”
Could elevated arrears have an effect on home costs?
For many households, the monetary burden can increase the danger of getting their home repossessed, which might imply a further provide of housing inventory to the market.
“Additional supply could worsen price falls,” mentioned Cameron Misson, economist with the Centre for Economics and Business Research (CEBR).
But he added that the quantity of individuals shedding their properties is not going to be sufficient to produce the market a lot in order that costs drop dramatically.
Several lenders have elevated mortgage charges not too long ago, which is prone to be mirrored within the rise of arrears, in keeping with Mr Misson. “This could slightly dampen the recent rebound in housing market activity,” he mentioned.
The degree of excellent funds remained under its peak of three.64 per cent within the first quarter of 2009, in keeping with Savills. In this era hundreds of British individuals misplaced their properties and home costs have plummeted.
Since then, decrease rates of interest, a extra proactive method from lenders and extra regulation have helped lower arrears.
But despite the fact that the uptick over the previous yr signifies a reversal of that pattern, economists and lenders don’t count on home costs to fall additional as a result of improve in home mortgage arrears. “This time around housing supply is coming from a particularly bad place,” mentioned Mr Misson.
“I think it’s unlikely we will see a significant downward impact on prices from the rise in mortgage arrears. Mortgage rates will continue their underlying downward trend, providing further boosts to housing demand,” he mentioned.
Lucian Cook added that the extent of individuals in arrears is simply 8 per cent larger than the common for the previous 10 years.
“Banks will keep a close eye on what is happening from here, but there is currently no risk to house prices,” he mentioned.
Emma Fildes, founding father of Brick Weaver, mentioned she believes the arrears figures can have had some affect on home costs within the South of England.
“More generally, I see prices flatlining but it won’t stop sellers trying for higher prices initially off the back of recent house price index data. Many first-time buyers getting financial help with their deposit remain keen to get off the rental merry-go-round and start putting down long-term roots. This financial step-up means that any sign of a change in rates, largely expected around June, will encourage them to crack on before others join the fight,” she added.
