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UK residential mortgages in arrears jumped to a seven-year high by value in the three months to June, while mortgage loans registered their biggest-ever fall, according to official data published on Tuesday.
The Bank of England’s quarterly survey of lenders showed that in the second quarter of 2023, the value of outstanding mortgage balances with arrears rose to £16.9bn — up 28.8 per cent compared with the same period last year.
The figure is the highest since the third quarter of 2016, and the largest annual percentage increase since 2019. But arrears, defined as borrowers failing to make contractual payments equivalent to at least 1.5 per cent of the outstanding balance or where the property has been repossessed, are still low compared with the 2008-09 financial crisis.
The data reflects the sharp rise in mortgage rates over the past two years, following 14 consecutive interest rate increases by the Bank of England.
Markets expect the central bank to raise rates by a further 0.25 percentage points to 5.5 per cent next week in its bid to tame inflation.
Lewis Shaw, founder of mortgage broker Shaw Financial Services, said the speed at which mortgage arrears were increasing was “terrifying”.
“This is dire data, and we know that it’s about to get an awful lot worse, with 1.6mn mortgage holders due to renew over the next 12 months at significantly higher rates than anyone has been used to for well over a decade,” he said.
According to the same BoE data, the outstanding value of all residential mortgage loans fell in the same period by £19.9bn, or 1.2 per cent, to £1.66tn compared with the three months to March. That is the biggest fall in absolute and percentage terms since records began in 2007.
Despite the rise to 1.02 per cent in total loan balances with arrears, the highest since the first quarter of 2018, they remain well below an all-time peak of 3.64 per cent in Q1 2019.
This is in part because of much more stringent regulations around mortgage affordability, which were introduced after the financial crisis, and because the full impact of higher interest rates has yet to be passed on to many households on fixed two-year and five-year deals.
Jamie Lennox, director at Norwich-based broker Dimora Mortgages, said “much of the damage of 14 consecutive base rate increases has yet to filter through.
“The percentage of arrears in 12-18 months’ time, when more people have come off their ultra-low rates, could be dramatically higher,” he added.
The BoE data also showed that the share of gross mortgage advances for buy-to-let purposes was 8.1 per cent, the lowest recorded since the final quarter of 2010.
Karen Noye, mortgage expert at the wealth management company Quilter, said the data pointed to “an exodus of landlords from the property market as the tightening of tax laws on buy-to-lets make them a more unattractive investment”.
The threat of a property price crash “is seemingly making more landlords opt to stay out of the market”, she added.