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Mortgage arrears in the UK reach fresh high

Mortgage arrears in the UK reach fresh high
Your Money
Written By:
Your Money
Posted:
01/11/2023
Updated:
03/11/2023

Mortgage arrears in the UK are now at their highest level since the financial crisis, according to a global credit intelligence provider.

Data published by Pepper Advantage on its portfolio of over 100,000 UK residential mortgages, showed a 23.3% annual increase in the arrears rate for the third quarter of this year.

The growth in the arrears rate is a reflection of successive increases in the percentage of mortgages which have experienced a Direct Debit Rejection (DDR). Year-on-year, the DDR rate for the third quarter grew by a considerable 19.3%.

However, this was smaller than the annual increase of 33.3% recorded in April.

The fact that the DDR rate is still increasing, albeit less acutely, indicates that the growth in arrears has not yet peaked.

Pepper Advantage anticipate a bleak short-term picture for mortgage holders, with the macroeconomic pressure on borrowers set to continue to impact arrears in the fourth quarter and going into next year.

It is an assessment with which the Bank of England would agree, as its latest Credit Conditions Survey forecast an increased number of defaults in the fourth quarter this year.

This is partly due to the central bank’s estimation, that only 20-25% of the impact of interest rate rises have filtered through into the economy.

Borrowers facing huge challenges

The research from Pepper Advantage further highlighted the headwinds facing borrowers, such as unpaid essential bills, depleted savings and an increasing proportion of disposable income spent on mortgage repayments.

Breaking down the arrears data, it was found that the rate of fixed rate mortgages in arrears grew 15.5% quarter-on-quarter, and 53.7% annually.

However, it should be noted that these come from a low base, and the absolute percentage of fixed rate arrears remains small.

But, the rate of variable mortgages in arrears spiralled by 5.6% quarter-on-quarter, and 29.1% year-on-year, starting from a much higher base.

Nearly one in four variable rate mortgages in Pepper Advantage’s portfolio is currently in arrears.

Regional differences

Regional disparities were also uncovered, with the highest absolute rate of arrears found in the North East, Yorkshire and Humberside and the North West, which all had arrears rates that ranged between 9-11% for the third quarter this year.

The South East, South West and Greater London had the lowest arrears rates in the UK, each around5-6%.

Across all age groups mortgage arrears grew quarter-on-quarter between 0.3 and 0.6%. It was worse for older generations, as those aged between 51 and 60 and over 60 showed the highest level of arrears.


"We expect the situation to get worse before it gets better."

-   Gerry McHugh, CEO of Pepper Advantage UK

Gerry McHugh, CEO of Pepper Advantage UK, said: “We are supporting customers during this difficult time as the increasing cost of living, reduced household savings and rising interest rates combine to put pressure on borrowers. Unfortunately, we expect the situation to get worse before it gets better.

“Our real-time credit intelligence gives us and our clients the information to provide appropriate support to the borrowers who need it, including measures such as interest rate reductions or extending mortgage term lengths.”


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