According to global credit intelligence provider, Pepper Advantage, mortgage arrears in the UK have now hit their peak since the financial crisis. With data encompassing over 100,000 UK residential mortgages, the firm identified a 23.3% annual surge in the arrears rate for the third quarter of this year.
A contributing factor to this increase seems to be the growth in Direct Debit Rejections (DDR) for mortgage payments. There’s been a notable 19.3% annual rise in DDR for the third quarter. While this is lower than the 33.3% spike in April, it’s still a considerable rise.
Pepper Advantage warns of a tough road ahead, predicting that macroeconomic pressures on borrowers will further impact arrears towards the end of this year and into the next. The Bank of England shares this sentiment, forecasting more defaults in the coming months.
What’s Behind the Increase?
The economic landscape has evolved in ways that have placed extra pressure on borrowers. Many are dealing with unpaid essential bills, dwindling savings, and a higher proportion of their disposable income being directed towards mortgage repayments.
Among the mortgages analysed, fixed-rate mortgage arrears rose by 53.7% annually, although this growth stems from a relatively low base. In contrast, variable rate mortgages in arrears have increased by 29.1% year-on-year, a significant figure considering their already high base. Alarmingly, almost one in four variable rate mortgages in Pepper Advantage’s data is now in arrears.
Regional Insights
Geographically, the burden isn’t evenly distributed. The North East, Yorkshire, Humberside, and the North West show higher rates of arrears, hovering between nine to 11%. In comparison, areas such as the South East, South West, and Greater London fare better, with arrears rates of around five to six per cent.
Another worrying observation is that older generations are feeling the impact more severely. Mortgage arrears have seen increases across all age groups, but those between 51 to 60 years old, and individuals above 60, are grappling with the highest arrear levels.
Looking Forward
Gerry McHugh, the CEO of Pepper Advantage UK, commented on the findings, emphasizing the firm’s commitment to supporting its customers during these challenging times. The combination of rising living costs, dwindling household savings, and increasing interest rates is exerting immense pressure on borrowers.
In light of these trends, McHugh anticipates that the situation will further deteriorate before showing signs of improvement. However, he assures that their real-time credit intelligence will enable them and their clients to extend appropriate support measures to affected borrowers, including potential interest rate reductions or extended mortgage term lengths.