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Landlords in mortgage arrears rise by 29 per cent in Q3

  • 09/11/2023
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Landlords in mortgage arrears rise by 29 per cent in Q3
Landlords are struggling to keep on top of buy-to-let payments as high interest rates bite, driving up mortgage arrears.

The number of buy-to-let mortgages in arrears has risen by 29 per cent to 11,540 in quarter three, compared to the previous quarter, UK Finance analysis shows.

Homeowner mortgages in arrears rose by 7 per cent on the previous quarter to reach 87,930.

The latest rise in the number of borrowers struggling to keep up with repayments takes the total number of homeowner mortgages in arrears to one per cent of the outstanding mortgage stock and 0.57 per cent for buy-to-let loans.

UK Finance expects the combined number of homeowner and buy-to-let mortgages in arrears to remain below one per cent of the total number of mortgaged properties by the end of the year.

In 2009, following the financial crisis, the number of homeowner and buy-to-let mortgages in arrears was more than double the current figures at 207,200. UK Finance says this reflects the benefits of lender stress tests carried out to ensure borrowers can keep up with their mortgage payments in the event of interest rate rises. Lenders are currently stressing mortgage payments at an interest rate of around 8 per cent.

The increases in arrears are driven by the combined impact of both cost-of-living pressures and higher interest rates. The latest round-up of average rates released by Moneyfacts showed that the average two and five-year fixed rates for homeowners stood at 6.29 per cent and 5.87 per cent respectively. For buy-to-let borrowers taking out the same deals the comparative rates are 6.24 per cent and 6.17 per cent respectively.

Interest rate pressures are felt more acutely in the buy-to-let market, says the trade body, because not all landlords are able to raise rents to cover the increase in their monthly payments.

Despite the number of distressed mortgagors on the rise, possession figures have decreased by nine per cent to 630 for homeowners, quarter on quarter, while remaining steady in the buy-to-let sector at 450.


Arrears rate is a ‘worrying’

Adam Oldfield, chief revenue officer at Phoebus Software, said: “The rate at which arrears is increasing is the worrying statistic that is unlikely to fall in any time soon. As worrying as this increase may be to many, the number of possessions fell highlighting the increased forbearance that lenders are showing to struggling borrowers.

“When you consider that lenders had to stress test borrowers up to eight per cent for almost all of the mortgages in existence today, the question is why is this happening? The answer, unfortunately, is most likely that the ultra-low interest environment that we have experienced over the last few years has led to a level of complacency. The rising cost of living and higher interest rates has come as a massive shock to many and budgeting for higher costs is not something borrowers have had to do for a very long time.”

Charlotte Nixon, mortgage expert at Quilter, added: “Mortgage possession actions, indicative of lenders seeking to recover properties from borrowers who have fallen behind on payments, have escalated. Specifically, mortgage possession claims, which are initial filings by lenders to obtain court permission to foreclose on properties, increased by 14 per cent to 4,185.

“This uptick is a clear signal of the rising financial pressure on homeowners. Meanwhile, mortgage possession orders, the court’s judgment that lenders may proceed with foreclosure, have risen by 18 per cent to 2,923, underscoring the gravity of the situation for those struggling to pay their mortgages.

“However, in a contrasting trend, actual repossessions, have decreased. This suggests some homeowners are finding ways to avert the final act of losing their homes, possibly through renegotiated payment arrangements or other forms of assistance. Potentially initiatives like the Mortgage Charter have helped to decrease repossessions providing a sliver of hope that there may be a growing cushion against the ultimate displacement from one’s home, despite the uptick in initial legal proceedings.”


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