UK Finance’s mortgage arrears and possession statistics show the number of homeowner mortgages in arrears of 2.5% or more grew by 7% on the previous quarter, while the Government’s mortgage and landlord repossession statistics show possession claims increased by 15% compared to the same quarter in 2022.

Around 81,900 homeowner mortgages are in arrears of 2.5% or more of the outstanding balance in the second quarter of the year.

Within the total figure there were 30,940 mortgages in the lightest arrears band, which is between 2.5% and 5% of the outstanding balance. This is a 12 per cent increase on the prior quarter.

Buy to let is battered

The UK Finance report added that there were 8,980 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter. Around 28%more than in the previous quarter.

UK Finance added that within that total there were 4,810 buy-to-let mortgages in the lightest arrears band, a rise of 41% than in the previous quarter.

It continued that mortgages in arrears made up for 0.93 per cent of all homeowner mortgages outstanding, and 0.44 per cent of all buy-to-let mortgages outstanding in the second quarter of 2023.

Riz Malik, founder and director at R3 Mortgages, said that growing number of buy-to-let landlords were “encountering serious financial challenges”.

Malik continued: “Beyond escalating borrowing expenses, unpaid rents stand as a significant factor. Moreover, when landlords aim to offload their properties, the timing couldn’t be less favourable in recent memory.

“Even at auctions, properties remain unsold. Regrettably, the Mortgage Charter offers no assistance to these landlords, despite their essential role in supplying housing in the private rental market. The surge in arrears was bound to happen and the outlook for many landlords is bleak.”

‘Alarming’ rise in buy-to-let possessions

On the possessions side, there were 610 homeowner mortgaged properties taken into possession during the period, which is 19% down on the previous quarter.

It continued that 440 buy-to-let mortgaged properties were taken into possession in the second quarter, 7% greater than the prior quarter.

Jamie Lennox, director at Dimora Mortgages, said that the data was “alarming and certainly heading in a direction we wouldn’t want to see”.

He continued: “The main concern is this is only the tip of the iceberg, The data so far won’t have factored in the customer who will now be landing on sky-high rates we’ve been experiencing in the last few weeks. With the real damage likely to unravel in 2024.”

Lewis Shaw, owner and mortgage expert at Shaw Financial Services, agreed that arrears figures will continue to get worse through 2024 as over 1.4 million households will face remortgaging at higher rates.

“You can’t jack up interest rates at the speed we’ve seen over the past 18 months and not cause households to sink below the waterline. Thankfully the Mortgage Charter will give some light relief for owner-occupiers, however the buy-to-let market seems to be dead in the water already,” he added.

Richard Lane, StepChange director of external affairs, also highlighted the issues mortgage holders were having, while calling on the government to keep an eye on the situation and act accordingly.

He said: “It’s no surprise to see mortgage arrears and possession claims for mortgage holders continuing to rise. Our clients are telling us that they’re facing a perfect storm of rising costs and financial pressures.

“We know when households face significant rises in costs, as many millions are right now, that people cut back on spending or turn to credit to keep up with essentials and the wider cost of living. For many, these coping strategies will be unsustainable and store up financial problems further down the road.

“Protections brought in by government and mortgage lenders to mitigate the difficulties are welcome and will help to keep people in their homes over the coming months, but we would urge policy makers to monitor the situation closely and keep further inventions to support people who are struggling on the table if necessary.”