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Mortgage arrears growth accelerates among fixed rate borrowers in Q4

Mortgage arrears growth accelerates among fixed rate borrowers in Q4
Samantha Partington
Written By:
Posted:
February 4, 2025
Updated:
February 4, 2025

Mortgage arrears among fixed rate residential borrowers in the final three months of 2024 grew by 8.4%, the highest growth rate recorded since Q1, as households struggled under economic pressures.

In Q1 2024, the growth rate for residential fixed rate mortgages reached 10.1%.

According to analysis by Pepper Advantage of more than 100,000 mortgages in its portfolio, variable-rate mortgage arrears also grew at their fastest pace in Q4 compared to the first three months of 2024, rising by 2.3%. In Q1 2024, arrears in this category rose by 3.9%.

What’s behind rising mortgage arrears?

Overall, residential arrears were up 2.4% in Q4 after two consecutive quarters of decline. Pepper said this was a worrying sign that certain segments of the UK population could be falling under renewed economic pressure, as inflation, including housing costs, rose to 3.5% in the 12 months to both November and December 2024.

Consumer Price Index inflation, excluding housing costs, dipped slightly in the year to December from 2.6% to 2.5%, opening the door for a possible interest rate cut by the Bank of England this month, said experts.

Fraser Gemmell, chief executive of Pepper Advantage, said: “The three-month run-up to the holidays is often a challenging time for household finances as families balance higher spending with bills and mortgage repayments. For borrowers, these strains were accentuated in Q4 by unexpectedly higher borrowing costs, particularly as many cheaper fixed-term mortgages came to an end. These pressures have translated into a higher rate of arrears growth across the board.”

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Growth in buy-to-let (BTL) arrears slowed, however. Between Q3 and Q4, landlord arrears slowed from a growth rate of 9.7% to 1.5%. Overall BTL arrears were up 38.1% since Q4 2023, however.

 

Regional differences in mortgage arrears

The overall rate of arrears increased across the UK except for the East Midlands, North East and Scotland, where it declined quarter-on-quarter by 1.8%, 2.4% and 3.2% respectively. All other regions saw their arrears rates grow by between 0.7% and 5.7%.

Gemmell added that while arrears growth in some regions was abating, the overall level remained “remarkably high” across borrower types, borrower ages, and product areas.

He said: “Increasing house sales have captured headlines in recent weeks as buyers race to beat the stamp duty deadline, but this is not the whole picture.

“Inflationary pressures remain a key concern for many households and will likely persist for the foreseeable future. Supporting these households remains crucial.”