Arrears and Possessions Data for Q2 2023

As mentioned last quarter, increases in arrears is not a surprise and our expectation remains that this will continue to go up but remain below one per cent of outstanding mortgages.

It’s important to remind ourselves that 80 per cent of mortgages are on fixed rates, so will not feel the impact of interest rate rises immediately. Similarly, as explained in our Household Finance Review, stress testing of mortgage affordability means that most households, including buy-to-let (BTL) landlords, will have a buffer.

So why are mortgage arrears rising? Percentage increases are always going to look stark when starting from a low base. However, this does not take away from the fact that early arrears, 2.5 per cent - five per cent of balance, has increased for both homeowner mortgages and BTL. The number of borrowers in this band of arrears rose by 3,240 for homeowners and 1,390 for BTL in quarter two.

Borrowers have now been subject to 14 consecutive interest rate rises and, together with increases in everyday costs, this is having an impact on household finances. Mortgages in arrears have a greater likelihood of being on variable rates, which means that rising interest rates will have a more immediate impact on these borrowers.

For those on fixed-rate mortgages, previous UK Finance analysis showed that, at that stage, refinancing rate shock (i.e., those moving to a higher fixed-rate deal) was not driving arrears numbers. Instead, cost of living pressures was impacting on their ability to pay.

And for BTL landlords who are missing their mortgage payments, we are not seeing signs that this is because of rental arrears. As long as renters are able to keep up with their payments, lenders will typically allow them to stay in the property for the remainder of their lease, even if the landlord has missed their mortgage payments.

Mortgage lenders understand that we are moving through a period of greater pressure on household finances. This is why  anyone who is worried about making their mortgage payments should reach out their lender early. All lenders have teams of experts ready to help with a range of forbearance options which will be tailored to each person’s circumstances. The government has also launched its Mortgage Charter, to recognise the additional pressure on mortgage holders from higher interest rates. While possession continues to remain a last resort, lenders have committed not to repossess within 12 months of a borrower’s first missed payment.