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Mortgage arrears hit eight year high with landlords hit hard

uk residential property
uk residential property

Mortgage arrears are on track to reach their highest level in eight years as households are hammered by higher interest rates.

The number of people behind on their loans is expected to reach 105,600 this year – an increase of 30pc compared with last year, according to banking trade body UK Finance. The figure was last this high in 2015 when there were 106,710 cases.

Arrears are forecast to grow another 22pc in 2024, reaching 128,800 cases, before hitting 137,800 in 2025.

UK Finance said the cost of living crisis and higher interest rates will continue to pile pressure on households.

Millions of homeowners still face mortgage shocks over the next two years as they come to the end of cheaper fixed rate deals secured when interest rates were at record lows.

Repossessions are also expected to rise 16pc next year, from 4,400 in 2023 to 5,100. They are currently at their highest point since 2019, the trade association said.

Fewer mortgages are expected to be granted next year, with landlords disproportionately affected.

The value of buy-to-let loans on new purchases this year will be 53pc lower than last year – a bigger drop than for residential mortgages.

Buy-to-let loans being remortgaged will face a similar plunge of 47pc.

Landlords will continue to shy away from purchasing with mortgages next year, with lending expected to fall a further 13pc.

James Tatch, head of analytics at UK Finance, said: “2023 was a challenging year for both prospective and existing mortgage borrowers facing affordability pressures from higher interest rates and the increased cost-of-living, as well as house prices still at elevated levels relative to income.”

UK Finance said landlords have faced the added pressures from “taxation and regulatory headwinds through 2023”.

Even though the contraction next year will be smaller, the trade body said challenges remain, particularly for “smaller-scale landlords who are less able to spread costs across their portfolios”.

The outlook for mortgage lending as a whole is expected to improve in 2025 as house prices, inflation and interest rates drop.

Unemployment, historically been the main cause of mortgage arrears , remains at very low levels.

Most homeowners who fall into arrears are expected to catch up thanks to a favourable job market, “extensive lender forbearance” and gradually improving affordability, UK Finance said.