The amount of mortgage arrears has risen by 44.5 percent in the first three months of this year as homeowners struggle with higher interest rates, Bank of England data shows.
Outstanding payment arrears rose to £21.3 billion, up 4.2 per cent on the last three months of 2023 and up 44.5 per cent on the first three months of that year.
It is the highest total amount of payment arrears since 2014.
Homeowners coming to the end of their fixed-term contracts agreed that rates were much cheaper and that they were still experiencing payment spikes when remortgaging.
In red: According to official statistics, the number of borrowers with payment arrears of at least €1,500 has increased over the past two years
Separate research released today by interest rate monitor Moneyfacts Compare suggests that those coming to the end of a five-year fixed rate period this month can expect the interest they pay to almost double, with the average interest rate rising from 2.85 percent then to 5.5 percent now.
The share of all mortgages in arrears has risen from 1.23 percent in the last three months of 2023 to 1.28 percent in the first three months of 2024, the highest level since the end of 2016.
On a mortgage with an outstanding balance of €175,000 and a remaining term of twenty years, that would mean the difference between paying €957 and €1,204 per month.
If they were to stay at the same rate for the remainder of the mortgage term, the total interest they would pay back would rise from £54,790 to £113,913.
For two-year fixes, the change was even more dramatic. The average interest rate rose from 1.99 percent in July 2020 to 6.85 percent three years later, as the base rate rose and the mini-Budget sent interest rates soaring.
James Hyde of Moneyfacts Compare said: ‘While mortgage rates have fallen significantly from last year’s peak, they remain much higher than they have typically been for the past fourteen years.
“For example, those reaching the end of their five-year interest term in June 2024 can expect their interest payments to nearly double.
“If they want to commit for a shorter term to keep their future options open, interest rates will be even higher: the average two-year term is currently close to 6 percent.”
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Moneyfacts Compare has mapped the trajectory of mortgage rates since 2010 and compared them to the previous four general elections.
It showed that the average two-year fixed mortgage rate fluctuated by less than 1 percent in seven years between April 2015 and April 2022, between 1.99 percent and 2.97 percent.
Five-year fixed deals also remained stable during that period.
The average two-year fixed mortgage rate was less than 2 percent (1.99 percent) in July 2020, but had more than tripled to 6.85 percent just over three years later in the wake of the base rate increases and the mini-budget for 2022. .
The data is based on the average rate, across all loan-to-value levels.
Down… and then up: Moneyfacts has revealed mortgage rate movements since 2010
Data from the Bank of England also shows that homeowners are borrowing less when they take out new mortgages.
The value of gross mortgage advances – new loans to borrowers – fell 2.6 percent from the previous quarter to £51.6 billion, the lowest since 2020, and was 12 percent lower than a year earlier.
This reflects the trend of some homeowners purchasing cheaper homes than they would otherwise have done, to offset the effects of higher mortgage rates and increased pressure on the cost of living.
Despite the increase in the overall balance of payment arrears, the data showed that the number of homeowners experiencing payment arrears for the first time fell.
The number of new payment arrears decreased by 2.6 percentage points in the period January to March 2024 compared to the previous three months, to 13.2 percent of the total outstanding mortgage balances with payment arrears.
This could indicate that the spike in arrears is largely due to those already in mortgage debt struggling to get out and accumulating more debt – rather than many more people falling into debt.
Borrow less: New advances to borrowers are being reduced as homeowners feel the pressure
Simon Gammon, managing partner at Knight Frank Finance, said that while mortgage debt was rising, there was not yet a “systemic risk” to the housing market.
“The value of mortgage balances in arrears has risen sharply as household finances have come under pressure from both higher mortgage rates and the rising costs of various goods and services,” he said.
‘This is serious for people who have difficulty paying their mortgage, but it does not yet pose a systemic risk to the housing market.
‘The share of total credit balances in arrears is still relatively low at 1.28 per cent, although Bank of England policymakers will keep a close eye on this data. The number of new cases of payment arrears actually decreased slightly over the quarter, indicating that the situation may be stabilizing.
‘Anyone concerned about falling behind on their mortgage should contact their lender as soon as possible. Lenders have been given strict instructions by regulators to provide forbearance, either by extending mortgage terms or by temporarily switching to interest-only payments.”
Mortgage rates have remained at a plateau in recent months and could fall further once the Bank of England decides to cut the base rate. This could happen at the June 20 meeting, but markets are now predicting August or September.
“Mortgage rates are currently moving sideways and, barring any nasty surprises, should continue to ease once the timing of the Bank of England’s first base rate cut becomes clearer,” Gammon added.
The payment arrears data comes from approximately 340 regulated mortgage providers and managers.
Delinquencies are not included in the data until they amount to 1.5 percent or more of the borrower’s current loan balance.
For example, if the loan balance is £100,000, arrears on the loan will only be recognized once they reach £1,500 or more.
It means more homeowners could be in arrears that haven’t yet reached that level.
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