Britons in most mortgage arrears since 2008 global financial crisis, says credit firm
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The UK housing market is under pressure from a triple whammy of pricey borrowing, economic uncertainty and cost-of-living crisis.
PHOTO: AFP
LONDON – Britain’s cash-strapped mortgage holders are missing payments and having their debit cards rejected as high interest rates squeeze finances.
Mortgages in arrears across the 100,000-plus British residential portfolio of Pepper Advantage Technologies – a loan-servicing provider to banks – rose 23 per cent between July and September from a year earlier, reaching the highest quarterly rate since the 2008 global financial crisis.
The company, whose portfolio is partly made up of financially vulnerable borrowers needing support on their payments, also saw direct debit rejections grow almost 20 per cent in the same period.
“We expect the situation to get worse before it gets better,” said Mr Gerry McHugh, chief executive officer at Pepper Advantage. “The increasing cost of living, reduced household savings and rising interest rates combine to put pressure on borrowers.”
The British housing market is under pressure from a triple whammy of pricey borrowing, economic uncertainty and the worst cost-of-living crisis in a generation. Mortgage prices have spiralled over the past year, with the average two-year fixed-rate mortgage still well above 6 per cent, according to Moneyfacts Group.
Pepper Advantage’s portfolio – which includes borrowers under forbearance arrangements with lenders – saw the rate of fixed mortgages in arrears grow 54 per cent year on year in the third quarter, albeit from a low base. Arrears in variable mortgages, which track interest rates, rose 29 per cent in the same period, with one in four of those loans now behind in payments.
The company manages mortgages for specialist lenders such as Metro Bank, and says it has US$55 billion (S$75 billion) in assets under management. About 10 per cent of its portfolio includes distressed mortgages held by customers who have been granted payment support such as term extensions and rate reductions, or switched to interest-only mortgages, a percentage it estimates is more than twice the share of mainstream lenders’ portfolios.
“Direct debit rejections and arrears are most pronounced in borrower groups that have historically struggled,” Mr McHugh said.
To be sure, the overall volume of loans in arrears remains low as only a small proportion of home loans have come up for renewal since the Bank of England began raising rates. Rules introduced since the financial crisis to ensure borrowers could afford their loans if rates increased have also kept a lid on the overall volume of arrears.
Still, Pepper Advantage, which is more exposed to Britons under financial strain, reported arrears rates of as high as 11 per cent in poorer regions in the north-east and Yorkshire between July and September, while southern regions had rates of about 5 per cent. Borrowers of age 51 or older showed the highest levels of missed payments.
“The fact that the direct debit rejections rate is still increasing – albeit less acutely – indicates that the growth in arrears has not yet peaked,” the report warned. BLOOMBERG
