The combination of high house prices and inflated mortgage rates has created tough affordability conditions which is hitting lower earners hard.
These concerns, which were raised by the body representing banks and mortgage lenders, unveiled data showing mortgage lending had been weak in the third quarter of 2023.
What’s more, it revealed, mortgage arrears had also increased by 9% compared to the previous quarter and up 24% compared to the same period in 2022. Indeed, UK Finance said, 99,840 borrowers had fallen behind with mortgage payments.
However, it said repossession had remained ‘extremely low’ by historic standards.
Whilst many people were being forced to dip into their savings to pay for the higher bills, UK Finance said many had avoided using overdrafts.
Eric Leenders, managing director of personal finance at UK Finance, warned there may be many people who did not have savings to fall back on and there may be an increase in borrowers who become worried about their repayments.
“If anyone is struggling with personal loan, credit card or mortgage repayments, please reach out to your lender as soon as possible for help,” he said.
“Meanwhile, sustained house prices and rising mortgage rates have meant mortgage lending remained weak last quarter, and we expect this to continue in the fourth quarter of this year.”
Remortgaging to higher rates
The main reason for this jump in mortgage arrears is due to the fact borrowers who have remortgaged in the last year have faced steep price rises.
In the last two years the Bank of England base rate has soared from 0.1% to 5.25% and mortgage rates have travelled upwards at a similar dramatic pace.
Whilst fixed rates are dipping slightly, they remain high for anyone who is due to remortgage next year.
Laura Suter, director of personal finance at AJ Bell, explained: “More people saw their fixed rate deal end and remortgaged onto dramatically higher rates – meaning they fell behind on repayments.
“Many homeowners have so far been unaffected by higher interest rates, as they have been comfortably sat on a lower fixed rate deal. But as more people come to remortgage, they face the reality of higher rates that are unaffordable for many.”
She added: “Some homeowners might take comfort from the fact the Bank of England appears to have halted its rate hiking cycle and that mortgage rates have subsequently dropped slightly. But there is still a huge gulf between current mortgage rates and the far lower fixed-rates that many homeowners will be coming off.
“We know that around 1.6 million mortgage deals are due to end in 2024 and until we see meaningful cuts from the Bank of England those homeowners will still be paying hundreds, and in many cases thousands, more each year for their mortgage.”
How to get help if you are falling behind with repayments
The reason repossessions remain low may well be down to the fact there is support for homeowners struggling to pay their mortgage through the Mortgage Charter.
A large number of lenders have signed up the agreement which means their customers who face difficulties with repayments may be offered a solution to help lower the cost temporarily.
This could include switching to an interest-only arrangement, making part-payments or extending the term.
Suter added: “Anyone who is struggling to pay their mortgage or thinks they will struggle in the near future should approach their lender as soon as possible. You can get help and guidance on your options without it impacting your credit file.”
