"The large increase in mortgage rates seen over the last couple of years is really starting to bite for some borrowers and this is unfortunately causing them to fall into arrears"
- Karen Noye, mortgage expert at Quilter
The value of outstanding mortgage balances with arrears increased by 50.3% in Q4 compared to the same quarter a year earlier, according to the latest Mortgage Lenders and Administrators Statistics from the Bank of England.
The figures, provided by around 340 regulated mortgage lenders, show that arrears increased by 9.2% in a single quarter between Q3 and Q4, to £20.3 billion.
The proportion of the total loan balances with arrears, relative to all outstanding mortgage balances, increased on the quarter from 1.12% to 1.23%, the highest since Q4 2016.
New arrears cases decreased by 2.6pp from the previous quarter, to 13.2% of the total outstanding balances with arrears, but remained 0.2pp higher than a year earlier.
The data also shows that the value of gross mortgage advances decreased by 13.4% between Q3 and Q4 to £54.0 billion, and was 33.8% lower than a year earlier.
The value of new mortgage commitments decreased by 6.6% from the previous quarter to £46.0 billion, and was 21.2% lower than a year earlier. If the onset of the Covid-19 pandemic is excluded, this was the lowest observed since 2013 Q1.
The proportion of lending to borrowers with a high loan to income ratio decreased by 2.6pp from the previous quarter to 42.7%, and was 6.6pp lower than a year earlier.
The data shows that the share of mortgage advances for buy-to-let purposes fell by 0.5% from the previous quarter to 7.0%, the lowest since Q3 2010.
Karen Noye, mortgage expert at Quilter, commented: "New Mortgage Lenders and Administrators statistics for Q4 2023 paint a very worrying picture of the mortgage market. The statistics show that the value of outstanding mortgage balances with arrears is over 50% higher than it was a year ago and has shot up nearly 10% (9.2%) in just one quarter.
"This shows that the large increase in mortgage rates seen over the last couple of years is really starting to bite for some borrowers and this is unfortunately causing them to fall into arrears as they simply can’t afford to keep up with their increased payments.
"The changes to National Insurance and Child Benefit at the Budget last week, will barely help considering many people will have seen their mortgage payments shoot up by £300 or more a month.
"Positively, the statistics show that new arrears cases decreased by 2.6% from the previous quarter, to 13.2% of the total outstanding balances with arrears, but remained 0.2% higher than a year earlier. This may well continue to climb again though as more people come off fixed term mortgages set when rates were low.
"Elsewhere, the data points to a market in a deep freeze similarly suffering from the higher rates. While house prices have remained resilient, the value of new mortgage commitments (lending agreed to be advanced in the coming months) decreased by 6.6% from the previous quarter to £46.0 billion, and was 21.2% lower than a year earlier. This illustrates a serious lack of demand and although prices continue to be buoyant if this dearth in demand continues prices may return to a downward trajectory.
"The various measures to make the buy-to-let market less attractive by the government are clearly having their intended impact as the share of gross mortgage advances for buy-to-let purposes (covering house purchase, remortgage and further advance) decreased by 0.5% from the previous quarter to 7.0%, the lowest since 2010 Q3. The changes to the holiday let rules at the Budget may also make things even worse for landlords who have been hit with numerous changes to the buy to let tax landscape in recent years making it a less attractive option. This has resulted in many leaving the market."
