Mortgage Arrears and Repossessions Jump as Homeowners Struggle Amid Soaring Interest Rates

Rows of terraced houses and residential properties are pictured in south London, backdropped by the skyline of the City of London, on July 6, 2020. (Daniel Leal-Olivas/AFP via Getty Images)

The number of homeowners in arrears and properties being repossessed jumped in the first quarter of this year, as mortgage costs soared amid repeated interest rate hikes.

According to figures from trade body UK Finance, some 750 homeowner mortgaged properties were taken into possession in the first quarter of 2023, a 50 percent increase from the previous three months.

The buy-to-let sector has also been affected, though to a lesser extent.

UK Finance said that 410 buy-to-let mortgaged properties were repossessed in the last quarter, which was 28 percent more than in the previous quarter.

In a further sign of borrowers struggling, the number of homeowners in arrears also ticked upwards.

There were 76,630 homeowner mortgages in arrears of 2.5 percent or more of the outstanding balance in the last quarter, 2 percent greater than in the preceding three-month period.

Within the total, 28,180 mortgages were in the most severe arrears band of 10 percent or more of the outstanding balance. This was a 1 percent decrease compared with the previous quarter.

There were also 27,700 homeowner mortgages in the lightest arrears band, representing between 2.5 percent and 5 percent of the outstanding balance. This was 5 percent higher than the previous quarter.

Meanwhile, 7,030 buy-to-let mortgages were in arrears of 2.5 percent or more of the outstanding balance in the first quarter of 2023, a 16 percent rise from the previous quarter.

Rising Borrowing Costs

Earlier this month, the Bank of England raised interest rates from 4.25 percent to 4.5 percent, the highest level in almost 15 years.

It was the central bank’s 12th consecutive rate hike, pushing up costs for some mortgage holders on variable rates.

A view of the Bank of England in the City of London, on Feb. 2, 2023. (Yui Mok/PA Media)

Previous figures from UK Finance indicate that homeowners whose mortgages directly track the base rate face a total average annual bill hike of around £5,000 following the series of rate hikes, which have taken the base rate from 0.1 percent to 4.5 percent.

Research released by the Financial Conduct Authority (FCA) this week indicated that around one in five adults were finding bills and credit commitments a heavy burden by the start of this year.

The FCA research found that 29 percent of adults with a mortgage and 34 percent of renters had experienced payment increases in the six months to January this year.

‘More Bad News to Come’

Lee Hopley, director of economic insight and research at UK Finance, said the figures should not be cause for panic.

He said: “The level of mortgages in arrears rose marginally in the first quarter of this year as the increased cost of living weighed on households’ incomes. However, the increase is small and the outright level is still lower than previous years.

“While the number of repossessions increased, it’s important to note that this is from a very low base as historic cases make their way through the courts. The total number of possessions remains significantly below the levels seen prior to the pandemic.”

Sonia Fernandes, principal of mortgage policy at UK Finance, said that lenders are “proactively supporting borrowers who are worried about their finances.”

But some other mortgage experts are less optimistic.

Samuel Mather-Holgate, managing director of Wiltshire-based advisory firm Mather & Murray Financial, said: “Repossession is the final stage of a long process, and these rose by 50 percent over the quarter. This unfortunately means there is more bad news to come.”

Justin Moy, founder of Essex-based mortgage broker EHF Mortgages, said: “This data does not make good reading. Some of this will be directly associated with higher mortgage rates, some will be the higher living costs that we are having to deal with.”

Lily Zhou and PA Media contributed to this report.