Yahoo Finance UK households falling behind on mortgage payments as costs surge
Mortgage fears grow as Bank of England expected to raise rates
UK households are struggling to pay their rising mortgages, with loans with arrears increasing by almost double-digits to £14.9bn.
The number of homeowners falling behind on their mortgages monthly payments increased by 9.5% in the first three months of the year and 12.5% on a year earlier, to £14.9bn, according to the latest figures from the Bank of England.
This is the highest seen since early 2021 and now accounts for almost 1% of all mortgage balances.
Lenders have been raising prices on some new and existing mortgages, with NatWest this Tuesday announcing a 1.57% percentage point increase on some buy-to-let loans.
Read more: UK households to pay £9bn more as mortgage costs surge
Santander paused new applications for certain products last night, ahead of launching a new range tomorrow.
The value of new mortgage commitments was 16% lower than the previous quarter, highlighting the reduction in demand for loans as interest rates have risen.
With only £48.9bn ending agreed to be advanced in the coming months between January and March this year, it is the lowest figure since mid-2020.
Overall, the outstanding value of all residential mortgage loans was £1,675.4bn at the end of March, 2.7% higher than a year earlier, but a decrease on the previous quarter for the first time since mid-2017.
Karen Noye, mortgage expert at Quilter, said: "Sadly, the picture is likely only set to get worse in the short term as once again the mortgage market has gone through a very turbulent period over the last week with rates getting ever more expensive piling even more pressure on already stretched budgets. The withdrawal of mortgage products and increasing rates by lenders over the past few weeks have been driven by a number of factors.
"The prevailing reason for this shift is the higher-than-expected inflation rate of 8.7% in April fuelling predictions that the Bank of England will raise interest rates to a higher level than previously thought. This fear has made some of the big name lenders cautious and prompted them to withdraw products and then raise their rates to safeguard against future losses."
Data from Uswitch shows the average two and five-year fixed-rate mortgages were sitting at 5.94% and 5.59% respectively on Monday – up from 5.64% and 5.04% on June 1.
Average mortgage rates:
Rates (1st June) | Rates (8th June) | % change from last week | |
Two-year fixed-rate mortgage (75% LTV) | 5.64% | 5.94% | +0.3% |
Five-year fixed-rate mortgage rate (75% LTV) | 5.04% | 5.59% | +0.55% |
Two-year variable-rate mortgage rate (75% LTV) | 5.09% | 5.14% | +0.05% |
Two-year fixed-rate mortgage (90% LTV) | 5.28% | 5.67% | +0.39% |
Standard variable rate (SVR) | 7.75% | 7.99% | +0.24% |
Adam Oldfield, chief revenue officer at Phoebus Software, added: “The fact that the number of mortgages slipping into arrears is increasing is worrying but not unexpected. With the ONS reporting that 1.4 million UK households will see their fixed rate deals come to an end in 2023, this is not a short-term worry.
"This prospect has the potential to stall the market further and house prices could start to tumble. Brokers and lenders are undoubtedly facing a challenging time, but where there is challenge there is usually opportunity. Identifying those opportunities whilst looking after the more exposed borrowers will be the most important thing.”
Read more: Interest rates set to rise as pay growth jumps
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “Mortgage borrowing plunged in the first three months of 2023, as higher rates took their toll on our enthusiasm for property. There’s every sign they will sink even lower, as approvals for the coming months dropped too. And rate hikes in recent weeks risk sending them to rock bottom. Meanwhile, arrears have started to climb.
"Mortgage borrowing fell off a cliff at the start of this year – down almost a quarter from a year earlier. Plenty of buyers who completed sales at this stage were likely to have been hunting for a mortgage at the worst possible time – when rates shot up in the aftermath of the mini budget. And for every determined buyer who saw it through, there will have been more who were scared back into the rental market."
Watch: How much money do I need to buy a house?
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