Jump in mortgage arrears and 11% rise in buy-to-let repossessions

There has been a jump in the number of properties falling behind with mortgage payments, according to industry figures that also show an 11% rise in repossessions of buy-to-let (BTL) properties.

UK Finance said cost of living pressures and higher interest rates continued to take a toll on borrowers over the final three months of 2023, with the numbers falling behind with payments rising in line with its forecasts.

Its data showed that homeowner mortgages in arrears increased by 7% to 93,680 compared to the previous quarter.

Buy-to-let (BTL) mortgages, also adjudged to be more than 2.5% behind the outstanding balance of the loan, rose by 18%.

UK Finance said while 540 homeowner-mortgaged properties were taken into possession in the period, a fall of 14%, there was an increase to 500 in the BTL category.

The body said such volumes were low compared to historical standards.

Separate figures from the Ministry of Justice showed that mortgage possession claims rose by 39% to 4,384 over the three months compared to the same period last year.

There was a 9% rise in orders being granted to 2,702 but a 19% decrease in repossessions by county court bailiffs.

Research from the debt charity StepChange, also released on Thursday, suggested that one in four mortgage holders had used credit to afford mortgage payments over the past 12 months.

Borrowing costs have risen since December 2021 when the Bank of England made its first move to tackle inflation, which had surged as economies got back in gear after COVID pandemic restrictions were eased.

The central bank, however, went on to raise the Bank rate a further 13 consecutive times in a bid to tackle elements of the cost of living crisis that followed Russia’s invasion of Ukraine.

It has held off on further rate hikes since last summer based on growing evidence its work to date is having the desired effect.

Bank of England governor Andrew Bailey told Sky News last week that he believed the next interest rate movement would be downwards but expressed doubt that it was imminent because inflation, while significantly slowed, remained stubborn.

Latest data on mortgage rates from the financial information service Moneyfacts showed average fixed-rate deals, covering both two and five-year terms for both residential and BTL customers, still above 5%.

They had stood at around 6.5% last summer.

The easing has been largely attributed to the lack of further Bank of England intervention.

UK Finance said of the outlook for borrowing costs: “In recent months, mortgage rates have been falling.

“This will help ease the payment shock for the 1.5 million homeowners and 230,000 BTL mortgage holders whose fixed-rate deals are due to end this year.

Lender stress tests have also helped ensure that borrowers are able to keep up with their mortgage payments, even when their interest rates rise above those in place when they first took out their mortgages.

“However, we know that other factors outside the control of lenders can also impact customers’ ability to manage their mortgage payments, so we would encourage anyone worried about their finances to reach out to their mortgage lender at the earliest opportunity to discuss the options available for their circumstances.”

Alastair Douglas, the chief executive of TotallyMoney, said of the data: “The latest figures show that more and more homeowners and landlords are falling into arrears, and we can expect the trend to continue as 1.7 million cheap fixed-rate deals come to an end this year.

“If you’re somebody who’s struggling, contact your lender and ask for support – and remember this won’t impact your credit rating.

“However, missed payments can – and they could stay on your credit file for up to six years. If these persist, you might end up in mortgage arrears, leading to court action and even repossession.

“Banks need to be more proactive in issuing this support, and must reach out to people who they think might be in difficulty. Otherwise, we won’t just be looking at a mortgage crisis, but a mental health one too.”