UK mortgage arrears jump 28% as high rates squeeze borrowers

BRITISH households are further falling behind on loan payments after a surge in interest rates, with arrears jumping by more than a quarter in the year through June as higher interest rates began to bite harder.

Loans in arrears climbed 13 per cent in the second quarter and are now 28.8 per cent higher than a year ago, data published on Tuesday (Sep 12) by the Bank of England show. The total value of home loans with late payments now accounts for 1.02 per cent of all outstanding mortgages, or £16.9 billion (S$28.7 billion).

Higher interest rates are slowly feeding through into Britain’s housing market, where most borrowers are on fixed rate deals. Borrowers face sharply higher costs when their fixed rate deals expire. That’s compounding the impact of soaring inflation and squeezed household finances, meaning more people are struggling to keep up with repayments.

Still, 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. Rules introduced since the financial crisis designed to ensure borrowers could afford their loans if rates increased have also kept a lid on the overall volume of arrears.

“While mortgage payments at today’s rates are painful and require borrowers to cut their discretionary spending, they are still technically affordable,” Knight Frank Finance managing partner Simon Gammon said. BLOOMBERG