Mortgage arrears soar in UK according to global credit service

Global credit intelligence provider Pepper Advantage, which has a 100,000+ UK residential mortgage portfolio, says arrears in this country have seen a 23.3 per cent annual jump. 

And it says the rate of Direct Debit Rejections, a form of missed mortgage payment and a leading indicator of borrower stress, grew 19.3 per cent over the same period. 

This growth in the arrears rate follows successive increases in the percentage of mortgages that experienced a Direct Debit Rejection.

Pepper Advantage says it expects macroeconomic pressure on borrowers to continue to impact arrears in the fourth quarter and into next year. This assessment was echoed in the Bank of England’s latest Credit Conditions Survey, which forecast defaults to increase in Q4. This is partly due to the central bank’s estimate that only 20 to 25% of the impact of interest rate rises has so far filtered through into the economy.

Breaking down the arrears rate by product type, region and age shows that some groups are under particular stress.

• The rate of fixed rate mortgages in arrears grew 15.5 per cent quarter-on-quarter and 53.7 per cent year-on-year, although Pepper Advantage stresses that these are off a low base and the absolute percentage of fixed rate arrears remains small;
• The rate of variable mortgages in arrears, however, grew 5.6 per cent quarter-on-quarter and 29.1 per cent year-on-year off a much higher base;
• Nearly one in four variable rate mortgages in Pepper Advantage’s portfolio is currently in arrears;
• Buy-to-Let mortgages, a historically stable product, are beginning to show signs of stress, with the arrears rate growing marginally quarter-on-quarter off a very low base;
• By comparison, the percentage of residential mortgages in arrears grew 7.0 per cent off a higher base.
• The regions with the highest absolute rate of arrears are the North East, Yorkshire and Humberside, and the North West, which had arrears rates that ranged between 9.0 and 11.0 per cent in Q3 2023. The South East, South West and Greater London had the lowest arrears rates in the UK, each around 5.0 to 6.0 per cent. 

Gerry McHugh, chief executive officer of Pepper Advantage UK, says: “We are supporting customers during this difficult time as the increasing cost-of-living, reduced household savings and rising interest rates combine to put pressure on borrowers. Unfortunately, we expect the situation to get worse before it gets better. Our real-time credit intelligence gives us and our clients the information to provide appropriate support to the borrowers who need it, including measures such as interest rate reductions or extending mortgage term lengths.”