In a letter dated 14 December 2022 sent to the Treasury Committee from Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), Rathi said the 200,000 mortgages that were already in payment shortfall made up 2.4 per cent of all regulated residential mortgages.
The regulator estimated that more people would fall behind on their payments over the next two years but said this estimation was sensitive to changes in interest rates and real incomes.
Rathi said the FCA assumed people would see a 10 per cent drop in their real incomes over this period which would result in “distributional effects”.
He added: “Some households will experience a greater fall in real income (perhaps because of job loss), and others may experience much smaller reductions (or increases).”
Rathi said the FCA’s definition of a borrower being in shortfall meant they were spending more than 30 per cent of their gross household income on mortgage payments.
He added: “This does not necessarily mean that those at risk will miss a mortgage payment because some people will be able to reduce their spending or make use of savings to help them meet their mortgage commitments.”
Millions face higher mortgage rates
The regulator said it would share any research on the impact of economic changes on mortgage borrowers.
This warning follows an update from the Office for National Statistics which said 1.4 million borrowers would be facing higher mortgage rates and costs when refinancing this year.
The statistical body said, according to the Bank of England, the effective interest rate on outstanding mortgages was 2.08 per cent in November last year. Meanwhile, the average interest rate on a variable mortgage at the time was 4.41 per cent and quoted household interest rate on new fixed mortgages were around six per cent.
