Shocking hike in mortgage arrears – and ‘it’s about to get an awful lot worse’

UK Mortgage Arrears Hit 7-Year High But Remain Low vs 2008 Crisis

Mortgage Arrears Jump 28.8% to £16.9bn in Q2

According to data from the Bank of England, the total value of outstanding UK residential mortgage loans with arrears rose to £16.9 billion in Q2 2023. This represents an increase of 28.8% compared to the same quarter last year. However, arrears remain relatively low compared to the 2008-2009 global financial crisis.

The Q2 2023 figure is the highest reported since Q3 2016. It also represents the largest annual percentage increase since 2019, reflecting the impact of rising interest rates on borrowers’ ability to meet mortgage payments.

Despite Increase, Arrears Still Only 1.02% of Mortgage Balances

While the jump in arrears is sizable, they still only account for 1.02% of total outstanding mortgage loan balances. This compares to a peak of 3.64% in Q1 2009 during the financial crisis.

Stringent post-crisis lending standards have kept arrears down, as most mortgages were issued based on stricter affordability checks. This has prevented widespread defaults, even as interest rates have risen sharply.

Outstanding Mortgage Balances See Record £19.9bn Decline

The Bank of England figures also showed the total value of outstanding residential mortgage loans fell by £19.9 billion in Q2 2023 compared to the previous quarter.

This 1.2% quarterly decline is the largest absolute and percentage drop since these records began in 2007. It reflects both lower mortgage lending as rates have increased, and some borrowers paying down debt faster.

Buy-to-Let Landlords Face Challenges as Rates Rise

• UK mortgage arrears hit 7-year high of £16.9bn in Q2 2023, up 28.8% vs last year
• Arrears still low at 1.02% of total balances, well below 2009 crisis peak of 3.64%
• Post-crisis lending rules have contained arrears despite rate rises
• Mortgage lending fell record £19.9bn in Q2, largest drop since 2007
• Owner-occupiers can cut spending to afford higher payments
• But BTL landlords face challenges as mortgages become unaffordable
• BTL sector may see more significant arrears issues emerge

While owner-occupiers may be able to cut discretionary spending to afford higher mortgage payments, buy-to-let landlords face greater challenges.

If their mortgage is no longer affordable or rent no longer covers costs, they must sell at potentially lower prices or default. This sector may see a more significant arrears issue emerge in coming quarters.