Pepper Advantage mortgage arrears rise by nearly a third YOY in Q4 2023

According to the latest figures from Pepper Advantage, there has been a 29.5 per cent annual increase in the arrears rate in Q4 2023, and a 5.7 per cent increase from the previous quarter, to reach a “new post financial crisis high”.

The percentage of variable rate mortgages in arrears increased by 5.7 per cent quarter on quarter (QOQ) and 29.6 per cent year on year (YOY).

Fixed mortgages in arrears increased by 13 per cent QOQ and 65.7 per cent YOY from a “very low base”.

The report added that the North East, Yorkshire and Humberside, the North West, and the West Midlands had the highest absolute rate of arrears in the UK. The South East, South West and Greater London had the lowest.

Pepper Advantage said every age group had experienced a growth in arrears rate ranging from 0.3 to 0.8 percentage points. Those aged 51 to 60 and 60+ showed the highest level of arrears.

The growth in arrears comes after successive rises in the proportion of mortgages that have experienced a direct debt rejection (DDR), which is when a direct debit instruction is processed by a creditor but the borrower has insufficient funds.

It is a form of “missed mortgage payment” and a “leading indicator of borrower stress”.

The DDR rate increased by around 30.8 per cent in Q4 compared to the same period in the previous year.

Pepper Advantage said that it “expects macroeconomic pressure on borrowers to continue to impact arrears in 2024”.

It noted that inflation had unexpectedly gone up in December, which underlined the “compounding pressures on households that are navigating both high living costs and elevated interest rates”.

Gerry McHugh, CEO of Pepper Advantage UK, said: “We are continuing to support customers during this difficult time as the increasing cost of living and persistent inflation heap more pressure on UK borrowers.

“The continued growth of DDRs – which had previously begun to slow – unfortunately suggests that we are not out of the woods. We are investing in our real-time credit data for times like these, so we can arm clients with the information they need to provide the right support to the borrowers.”