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UK mortgage arrears hit six-year high, data shows

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UK mortgage arrears hit a six-year high in the three months to September, according to Bank of England data, reflecting the impact of high borrowing costs on household finances.

The proportion of total loan balances with arrears, relative to outstanding mortgage balances, rose to 1.14 per cent in the third quarter from 1.02 per cent in the previous three months, figures on Tuesday showed.

The data marked a reversal of a long-term decline in outstanding mortgage payments and a new high since the second quarter of 2017.

“Many homeowners have found themselves in a financially precarious position resulting from the double whammy of rising borrowing costs and rampant inflation,” said Myron Jobson, analyst at investment platform Interactive Investor.

For many Britons the burden has added strain to overstretched budgets, raising the risk of home loss, he added.

The Bank of England has increased interest rates from a historic low of 0.1 per cent to the current 5.25 per cent over the past two years. This rising cost of borrowing has led housing demand to cool as more people struggle to meet their mortgage payments.

Line chart of % showing UK mortgage arrears rose in 2023

However, the level of outstanding payments remained below its peak of 3.64 per cent in the first quarter of 2009, when surging unemployment, high debt levels and a large proportion of households with variable rates forced numbers to swell.

Since then, lower interest rates, a more proactive approach from lenders in managing borrowers in financial difficulty and the government’s Mortgage Pre-Action Protocol have helped to push down arrears. The protocol aims to make proceedings for residential possession claims a last resort.

Simon Gammon, managing partner at Knight Frank Finance, noted that “repossessions are extremely low by historic standards and should remain so”.

He added the Financial Conduct Authority had “made it clear that it wants lenders to support borrowers where it’s possible . . . whether by offering term extensions or periods of interest-only payments”.

But the latest uptick indicated a reversal of the trend, with the number of accounts with money owing rising to 176,000 in the third quarter, 25,000 more than in the same quarter of last year.

The value of outstanding mortgage balances with arrears increased 44 per cent from the previous year to £18.8bn.

Households were “struggling desperately with sky-high mortgage, food and energy costs and sadly some are falling behind”, said Karen Noye, mortgage expert at Quilter.

BoE data also showed the share of gross mortgage advances for buy-to-let purposes fell to 7.5 per cent in the three months to September, from 12.5 per cent in the same period last year, to its lowest level since 2010.

The decline reflected changes to the tax system for landlords over the past few years as well as the challenging interest rates environment, analysts said.

Successive changes to the tax landscape in recent years had made it harder for landlords to turn a profit, Noye said. “Many are now choosing to not bother adding to their property portfolios or leave the market altogether as a result.”

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