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More than 750,000 UK households at risk of mortgage default, says regulator

More than three quarters of a million UK households are at risk of defaulting on their mortgage payments in the next two years, the country’s top financial regulator has warned.

In a letter to the House of Commons Treasury select committee on Wednesday, the Financial Conduct Authority said about 200,000 households had fallen behind on their home loans by mid-2022.

The watchdog said a further 570,000 households were “at risk of payment shortfall” within the next two years, because their mortgage costs will be more than 30 per cent of their income.

The figures underline the pressures being felt by ever more people as a result of the cost of living crisis. If 770,000 households did default, that would mean about 9 per cent of the UK’s mortgages were overdue.

The FCA made the prediction based on a 10 per cent fall in households’ real incomes, as wage growth falls behind inflation, which is running at 10.7 per cent.

“Some households will experience a greater fall in real income [perhaps because of job loss] and others may experience much smaller reductions [or increases],” the FCA wrote, adding that the figures were “preliminary”.

The Office for National Statistics on Tuesday said 1.4mn households face higher interest payments next year as their fixed rate mortgages expire.

That will put more people into the FCA’s “at risk” category, which is defined as anyone who spends more than 30 per cent of their gross household income on mortgage payments.

The FCA’s statement amplifies a warning last month from the Bank of England’s Financial Policy Committee. It said UK households were being “stretched” by rising interest rates and soaring inflation, though they were yet to show “widespread signs of financial difficulty”.

The regulator noted that some households would be able to cut spending on other things, or dip into savings to pay their mortgages, and said it would further research the impact of other developments, such as unemployment, on defaults.

The FCA also called on the insurance sector to consider waiving cancellation and other contract fees to support customers struggling with the surge in living costs.

Last month, some of the UK’s largest banks — including HSBC, Barclays, Lloyds Banking Group and NatWest — agreed to use a special package of crisis-era forbearance measures to protect struggling households from repossessions and penalty charges.

The measures, agreed after a meeting between the banks and Chancellor Jeremy Hunt, include switching borrowers to interest-only deals or offering them competitive fixed-rate deals without putting them through another affordability test.

Additional reporting by Ian Smith in London

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