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UK mortgage delinquencies reached a seven-year high in the last quarter of 2023, according to official data underscoring the impact of rising borrowing costs on households.
The Bank of England said on Tuesday that the proportion of total loan balances in arrears, compared to outstanding mortgage balances, rose to 1.23 per cent in the three months to December 31 from 1.12 per cent in the third quarter.
These numbers reflect a long-term decline in late payments and the highest share since the last quarter of 2016, when it was 1.24 percent.
The trend in rising home loan arrears follows a sharp increase in mortgage costs over the past three years, with the Bank of England raising interest rates to a 16-year high of 5.25 per cent in an attempt to tame inflation. However, the share of delinquent mortgages remains well below the peak of 3.64 percent in the first quarter of 2009 during the global financial crisis.
“The significant increase in mortgage rates we've seen over the past couple of years is really starting to hurt some borrowers, and this is unfortunately causing them to fall into arrears where they simply could,” said Karen Noe, mortgage expert at wealth management firm Quilter. They can't keep up with their increasing payments.
Financial markets expect the Bank of England to begin cutting interest rates starting this summer, bringing the benchmark interest rate to 4.5 percent by the end of the year.
A repricing of interest rate expectations has led to lenders offering cheaper deals, but households still face higher mortgage repayments as their fixed contracts expire.
The average two-year mortgage at 60 percent of the loan value reached 4.62 percent in February, according to the central bank. This is lower than the peak of 6.22 per cent last July, but much higher than the average of 1.29 per cent in 2020 and 2021, when interest rates were 0.1 per cent.
“At 1.23 per cent, the proportion of delinquent loan balances is still very low, but the pace at which it is rising will be a concern for policymakers,” said Simon Gammon, managing partner at brokerage Knight Frank Finance.
Home loan arrears are lower than they were during the 2008-2009 financial crisis, partly due to labor market flexibility and improved mortgage regulations.
In research published last month, the Bank of England said the “vast majority of borrowers” reaching the end of fixed deals in 2023 received interest rates lower than those tested when terms were agreed.
Bank of England data on Tuesday also showed that the share of total buy-to-let mortgage loans fell by 4.9 percentage points year-on-year in the latest quarter to 7 per cent, the lowest level since 2010.
Noy said landlords had been “exposed to many changes in the buy-to-let tax landscape in recent years, making it a less attractive option”, and that “changes to budget holiday letting rules may also make things worse”. “.
