Mortgage arrears jumped by 9.2% in the final quarter of 2023 and by 50% on the previous year, according to Bank of England figures that underscore growing stress in the UK mortgage market.
High interest rates and the rising number of people quitting the jobs market over recent months have put pressure on household disposable incomes, forcing some families to cut or suspend a range of monthly bills, including their mortgage payments.
The Bank said the total value of mortgage balances which had some arrears increased to £20.3bn, or 1.23% – the highest since the fourth quarter of 2016.
Mortgage arrears are based on figures showing the number of borrowers failing to make payments equivalent to at least 1.5% of the outstanding mortgage balance or where the property has been repossessed.
Simon Gammon, the managing partner at Knight Frank Finance, said: “At 1.23%, the proportion of loan balances in arrears is still very low, but the pace at which it is rising will be a source of concern for policymakers at the Bank of England.”
He said the housing market had shown “remarkable resilience given the surge in borrowing costs that we’ve seen”, but forbearance by lenders had kept forced selling “very low”.
Gammon said: “While borrowing costs have likely peaked and should begin falling meaningfully over the summer, the figures demonstrate that we’re not yet out of the woods and conditions remain very difficult for many borrowers.”
More than 1.5m households are expected to refinance their loans this year at higher mortgage rates, putting further pressure on lenders to agree payment holidays.
However, forbearance by lenders and strict lending rules over the last decade that have restricted new borrowing to households that can withstand higher borrowing costs have limited the likelihood of a surge in repossessions.
In line with a trend for older households to own their homes outright, the Bank said the outstanding value of all residential mortgage loans decreased by 0.1% from the previous quarter to £1,657.6bn, and was 1.1% lower than a year earlier.
A decline in mortgage advances also played a part in the overall value of the UK mortgage market, with a decrease by 13.4% from the previous quarter to £54bn, and a decline of 33.8% on a year earlier.
The value of new mortgage commitments – lending agreed to be advanced in the coming months – decreased by 6.6% from the previous quarter to £46bn, and was 21.2% lower than a year earlier.
If the onset of the Covid-19 pandemic was excluded, this was the lowest recorded since the first quarter of 2013, the Bank said.
