UK mortgage arrears jump to six-year high

According to the Bank of England, residential mortgage arrears jumped to a six-year high between July and September. Credit: PA

The squeeze on mortgage-holders is tightening.

Higher interest rates are really starting to hit households' finances - which is exactly what they are designed to do, of course. 

According to the Bank of England, residential mortgage arrears jumped to a six-year high between July and September.

Credit: Bank of England

Borrowers have fallen behind on repayments of loans totalling just under £19 billion - that’s only 1.14% of outstanding balances and a long way off the peak of 3.64% in 2009 but it’s up 44% on the same period a year ago.

The situation will worsen because the full force of the impact of rate rises we have had over the last two years has yet to be felt. 

Five million mortgages have been refinanced since the Bank began increasing interest rates in December 2021.

The Bank estimates five million homeowners face significant increases to their monthly repayments as they refinance between now and 2026.

Mortgage expert Karen Noye of Quilter Financial Advisors warned that households could see a £500 increase in their monthly mortgage payments

There are reasons to be hopeful: unemployment remains low, lenders have been applying strict affordability tests to borrowers for the last 15 years. Lenders are confident most of their customers will find ways of adapting.

Higher interest rates have not triggered the widely predicted slump in property prices but new mortgage lending has shriveled, and lending to Buy-To-Let landlords is in retreat (the total value of such loans is at its lowest level since 2010). If you listen carefully you can hear the sound of tumbleweed. 

The Bank of England will announce its latest interest rate decision on Thursday, ITV News Business and Economics Editor Joel Hills reports

However, market expectations about the path of Bank Rate are changing. 

Following the latest labour market statistics, released this morning by the Office for National Statistics, investors are betting that not only have interest rates peaked but there’s a tiny chance they will be CUT on Thursday and that Bank Rate will be 1% lower by this time next year.

The message from the Bank of England has been very different because it has been worried that pay has been rising so fast it threatens to keep inflation above target.

The latest evidence shows that annual pay growth, excluding bonuses, in October eased but is still running above 7%.

That’s great news in the sense that pay has begun to rise faster than prices but isn’t such great news if companies are funding settlements on this scale by hiking their prices, as the Bank fears.

Unemployment is historically low, the number of vacancies in the economy is unusually high.

The smart money is the song the Bank sings on Thursday will be the same: “It’s too soon to think about cuts”.

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