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Rising Mortgage Arrears Signal Tough Times Ahead, Bank of England Reports

The Bank of England’s latest figures reveal a concerning trend in the UK’s mortgage market, with £18.8 billion of mortgage borrowing in arrears in the third quarter of this year. This figure marks an 11.4% increase from the previous quarter and a substantial 44% rise from the same period last year. The proportion of total loan balances in arrears relative to all mortgage balances has risen to 1.14%, the highest level since mid-2017.

Despite the overall outstanding mortgage balances in the quarter falling by 0.8% to £1,654.3 billion, the amount borrowed over the quarter surged by 18.6% from the previous three months to £62.2 billion. However, this figure is still down 27.6% from a year earlier. New mortgage approvals for the coming months have also decreased, falling by 16.5% in a quarter and 41.4% year-on-year to £51.5 billion.

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the situation: “Arrears have reared their ugly heads, with total mortgage arrears up over 10% in a quarter and rising by almost half in a year.” She notes the particular impact on those with larger mortgages, explaining how those who stretched their finances are now facing challenges as mortgage deals end.

Coles warns of the prolonged impact due to the prevalence of fixed rates in the market: “With so many people moving from a fixed rate of less than 2% to around 6%, it’s no surprise that so many are hitting a brick wall financially.” She advises those struggling to make payments to seek help early, as mortgage companies can offer various forms of assistance.

Regarding borrowing levels, Coles observes a slight recovery in new mortgage borrowing during autumn, though levels remain significantly lower than last year. She anticipates that higher rates will continue to dampen buyer enthusiasm, with UK Finance forecasting an 8% decrease in mortgage lending for purchases next year. This could lead to a sluggish property market and potential challenges for sellers with properties languishing on the market.

Coles suggests that buyers considering postponing their purchase should assess how long they plan to wait. For those delaying by 12 months or more, she recommends exploring savings options, such as fixing savings for a year at rates potentially higher than 5.5%.

These insights from the Bank of England and Hargreaves Lansdown paint a picture of a mortgage market facing significant challenges, with rising arrears and a shift in borrowing and lending patterns amid economic uncertainty.