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Mortgage arrears and possessions to rise over the next year

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
13/10/2022

The housing market lost momentum in September and the Royal Institution of Chartered Surveyors (RICS) warns that arrears and possessions are expected to rise over the next year.

The RICS September residential market survey revealed that new buyer enquiries fell for a fifth month, as new instructions and agreed sales also remained negative.

It said that while stock levels are at historic lows which has propped up house prices, the current outlook for interest rates and an “uncertain macro picture have taken a further toll”.

Given the expected rise in mortgage rates over the coming six months, it is also anticipated to outweigh any potential boost from the cut to stamp duty.

Further ahead, the 12-month expectation has turned negative, owing to the significant increases in mortgage rates putting pressure on the market.

As such, RICS said arrears and possessions are “inevitably going to move upwards over the next year”.

However, on the rental side, tenant demand rose while there was a fall in landlord instructions. As a result, near-term expectations point to further strong growth in rental prices over the coming three months.

‘Storm clouds are visible’

Simon Rubinsohn, chief economist at RICS, said: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost-of-living crisis, in shifting the dial in the housing market. Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near-term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.”

Rubinsohn added that it was difficult “not to envisage further pressure on the housing sector” as the economy adjusts to higher interest rates and the tight labour market begins to reverse.

He said: “For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows. However, as lenders have been a lot more cautious through this cycle with high loan to value mortgage accounting for a much smaller share of the lending book than in the past, this should help to limit the adverse impact on the market.”

‘Talk to your lender if you’re struggling with mortgage bills’

Sam Richardson, deputy editor of Which? Money, said: “The sharp rise in mortgage rates in recent weeks has put huge additional pressure on households on variable rates or anyone due to remortgage soon. Many people will now be feeling very anxious that they’ll be unable to make their monthly payments.

“If you’re struggling to pay your mortgage bills, talk to your lender as they can help you get your payments back on track.

“Support measures they could offer include a temporary payment holiday, lengthening the term of your mortgage to cut your monthly instalments or switching you temporarily to interest-only repayments.”

Related: See YourMoney.com’s Seven options if you’re coming to the end of your mortgage fix and ‘Repossession is a last resort’: Five options if you’re struggling with your mortgage for more information.