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Mortgage arrears and home repossessions rise as interest rates rocket

Paloma Kubiak
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Paloma Kubiak

Homeowner and buy-to-let mortgage arrears have increased in the first quarter of the year, with the latter experiencing increases of up to a third at some bands, the latest figures show.

According to UK Finance, there were 76,630 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the first three months of the year. This is 2% higher than the previous quarter.

Within that, 27,700, or around 36%, were at the lightest arrears band between 2.5% and 5% of the outstanding balance.

The report noted that this was a 5% increase on the prior quarter.

UK Finance said there were 7,030 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of this year, which it said was a 16 per cent rise on the previous quarter.

Out of that total nearly half, 3,420, were in the lightest arrears band of 2.5% or 5% of the outstanding balance. This is a leap of a third compared to the prior quarter.

The report continued that 750 homeowner mortgaged properties were taken into possession in Q1 2023, which is up by 50% compared to the previous quarter.

Around 410 buy-to-let mortgaged properties were taken into possession in the first quarter of this year, a rise of 28% on the prior quarter.

Figures ‘crushing blow’ for FCA and BoE

Prooperty market experts were unsurprisingly downbeat about the findings.

Samuel Mather-Holgate of Mather and Murray Financial, said the data would “come as a crushing blow” to the Financial Conduct Authority and the Bank of England.

He said: “If anyone was considering how the affordability stress tests worked, it is now abundantly clear they don’t when rates rise this quickly. Repossession is the final stage of a long process, and these rose by 50% over the quarter. This unfortunately means there is more bad news to come.

“Considering the menial effect of higher interest rates on the type of inflation we have, the Bank of England should be ashamed of itself for creating the misery we are seeing and the crisis that is developing,” he added.

‘Talk to your lender’

Justin Moy, founder at EHF Mortgages, agreed that the “data does not make good reading”, but was adamant that lenders did not want to repossess and were looking for ways to help borrowers stay in their homes.

He said: “Some of this will be directly associated with higher mortgage rates, some will be the higher living costs that we are having to deal with. Mortgage lenders are legally obliged and genuinely wish to help borrowers who are in financial difficulty, and can put a variety of plans together to help in the short term, such as interest-only or lengthening the term.”

Moy added that a few of his clients with such challenges have been “very pleased and surprised when they have spoken to their lender”.

Talk to an adviser and get protection

Bob Singh, director of Chess Mortgages, highlighted the role of brokers in givin the right advise, especially aroudn the need for protection products.

He said: “The message here for those struggling is to take advice and communicate with lenders, who are very reasonable under these circumstances and repossession is often a last resort for them. Many lenders are missing out on the opportunity to design products and policies to help these borrowers.”

He said many lenders did not insist on income protection or life cover, so the “responsibility also falls on advisers to ensure the client takes out suitable redundancy/personal health insurance cover to ensure the income continues”.