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Mortgage arrears on the rise

Mortgage arrears on the rise

Category: Mortgages

Updated: 13/10/2016
First Published: 13/10/2016

Mortgage arrears had been falling for several years, driven by low mortgage rates and improved affordability – but unfortunately, that's come to an end. New research from The Money Charity shows that cases of mortgage arrears have now risen for the second quarter in a row, which could signal the start of a worrying trend in the mortgage market.

Citing figures from the Financial Conduct Authority (FCA), the report reveals that at the end of the second quarter of 2016 there were 218,279 mortgage accounts with arrears of more than 1.5% of the balance, an increase of 5% up on the previous quarter and
14% up on the low at the end of 2015.

The number of mortgage cases in arrears had been steadily falling from a high point of almost 400,000 in 2009, but it appears that the run of improvements has ended. This is despite the fact that the average mortgage rate was just 2.84% in August, with such low rates and a recovering economy having previously driven the fall in arrears.

However, such improvements are no longer having the same effect, said the report, with economic jitters and pressed affordability potentially having an impact. So far, this hasn't yet led to an increase in mortgage repossession claims, which are down 9% from a year ago, and it's hoped that this won't change – but the situation isn't showing any signs of improving in the near term.

"Mortgage interest rates have been extremely low in the last few years, and have been part of what has allowed more people to pay off and avoid arrears," said Michelle Highman, chief executive of The Money Charity.

"People's houses are in most cases by far the largest assets they have. We at The Money Charity are glad that these growing arrears have not yet resulted in more people leaving their homes, but with the Government recently signalling that rates will have to rise, households with tracker mortgages in particular may have to budget for much larger repayments.

"Both individuals and the Government should be prepared for more mortgage arrears and difficult times ahead."

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