UK mortgages in arrears hit near 8-year high

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UK mortgages in arrears hit an almost eight-year high in the first quarter of 2024, according to official data that underlines the continuing impact of high borrowing costs on households.

The proportion of total loan balances with arrears, relative to outstanding mortgage balances, rose to 1.28 per cent in the three months to March 31 from 1.23 per cent in the previous quarter, the Bank of England said on Tuesday.

The figure marked a continued reversal of a long-term decline in overdue payments and the highest share since the final quarter of 2016, when it stood at 1.24 per cent, and point to the challenges facing many voters ahead of the general election on July 4.

High shop prices, rents and mortgage costs are putting pressure on Prime Minister Rishi Sunak’s campaign message of an improving economy, with his governing Conservative party about 20 percentage points behind Labour in opinion polls.

Simon Gammon, managing partner at consultancy Knight Frank Finance, said: “The value of mortgage balances in arrears has surged as household finances have come under pressure from both higher mortgage rates and the rising cost of various goods and services.”

While the rise in arrears was “serious” for people struggling to pay their mortgages, “it doesn’t yet present a systemic risk to the housing market”, he added.

Arrears are still low compared with their all-time high of 3.64 per cent in the first quarter of 2009, during the global financial crisis. They have since declined on the back of the broader economic recovery and changes to mortgage regulations.

But more households are set to face higher mortgage costs this year as fixed deals agreed two or five years ago expire.

Mortgage rates rose sharply between late 2021 and 2023 as the BoE lifted interest rates to a 16-year high of 5.25 per cent in a bid to tame inflation.

They have eased from their peak in summer 2023 on expectations that the BoE will start cutting interest rates this year, but they have edged up since February on the back of disappointing inflation and wage data.

Separate data published by the BoE last week showed that the quoted 2-year mortgage rate on a 60 per cent loan to value rose to 5.01 per cent in May, up from 4.62 per cent in January but well below the 6.22 per cent in July 2023.

Abigail Fernandes, analyst at credit management company Pepper Advantage, said the data on Tuesday showed that “certain groups remain under pressure and will likely require support for some time”.