According to the Bank of England, the level of outstanding mortgage balances with arrears surged by over 50% in 2023’s fourth quarter in comparison with a year earlier.
Bank of England Alerts to 50% Spike in Mortgage Arrears
The Bank highlighted that the value of outstanding mortgage balances with arrears jumped by 9.2% from the preceding quarter, reaching £20.3 bn making it 50.3% higher than in 2022.
The amount of the entire loan balances with arrears, based on all outstanding mortgage balances, surged in the quarter from 1.12% to 1.23%, marking the highest percentage ever recorded since 2016’s fourth quarter.
Nonetheless, according to data from the Bank’s mortgage lenders and administrators, the number of new cases of borrowers falling behind on their home payments dropped when compared to the prior quarter.
The new mortgage commitments’ value decreased by 6.6% from the preceding quarter to £46.0 bn and was 21% lower in comparison with a year earlier.
According to the Bank of England, this was the lowest level recorded since the first quarter of 2013, excluding the COVID-19 epidemic.
Karen Noye, a mortgage expert at wealth manager Quilter, noted the figures “paint a very worrying picture of the mortgage market.”
“This shows that the large increase in mortgage rates seen over the last couple of years is 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,” she stated in reference to the spike in arrears.
She later added: “The changes to National Insurance and Child Benefit at the Budget last week, will barely help considering many people will have seen their mortgage payments shoot up by £300 or more a month.”
Buy-to-Let Market Faces Headwinds as Mortgage Arrears Show Mixed Trends
Noteworthy insights from Karen Noye highlighted that positively, the statistics indicate that recent arrears cases fell by 2.6% from the preceding quarter, to 13.2% of the entire outstanding balances with arrears, but remained 0.2% higher than a year earlier.
“This may well continue to climb again though as more people come off fixed-term mortgages set when rates were low.
“Elsewhere, the data points to a market in a deep freeze similarly suffering from the higher rates. While house prices have remained resilient, the value of new mortgage commitments (lending agreed to be advanced in the coming months) decreased by 6.6% from the previous quarter to £46bn and was 21.2% lower than a year earlier. This illustrates a serious lack of demand and although prices continue to be buoyant if this dearth in demand continues prices may return to a downward trajectory.”
The government’s various initiatives to make the buy-to-let market less appealing were clearly having the desired effect, according to Noye, as the percentage of gross mortgage advances for buy-to-let purposes (which include home purchase, remortgage, and further advance) dropped by 0.5% from the previous quarter to 7.0% in the most recent quarter since 2010 Q3.
“The changes to the holiday let rules in the Budget may also make things even worse for landlords who have been hit with numerous changes to the buy to let tax landscape in recent years making it a less attractive option. This has resulted in many leaving the market,” she concluded.
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