As high interest rates squeeze finances, many British mortgage holders miss payments and have their debit cards refused.
The number of mortgages that are in arrears on the UK residential portfolios of Pepper Advantage Technologies Ltd., a loan-servicing company to banks, increased by 23% from July to September compared with a year ago. This is the highest rate for a quarter since the financial crisis. In the same time period, direct debit rejections increased by almost 20% for the company, which has a portfolio that includes financially vulnerable borrowers who need help with their payments.
“We anticipate that the situation will get worse before getting better,” said Gerry McHugh, chief executive of Pepper Advantage. The rising cost of living, decreased household savings and increasing interest rates all combine to put pressures on borrowers.
The UK housing market has been under pressure for the past year due to a triple threat of high borrowing costs, economic uncertainty, and the worst cost of living crisis in generations. According to Moneyfacts Group plc, mortgage prices have risen over the last year. The average fixed-rate two-year mortgage is still above 6%.
In the third quarter of 2013, the number of arrears on fixed mortgages rose 54% from the previous year, even though the base was low. In the same time period, arrears on variable mortgages (which track interest rates) rose by 29%. One in four loans is now in arrears.
It manages mortgages on behalf of specialist lenders, such as Metro Bank. The company claims to have $55 billion worth of assets under management. It estimates that about 10% of its portfolio is distressed mortgages owned by customers who were granted payment support, such as rate reductions or term extensions.
McHugh stated that “direct debit rejections and arrears were most prevalent in borrower groups who have struggled historically.”
The overall volume of arrears is low, as only a small portion of home loans are due for renewal after the Bank of England started raising rates. The overall amount of arrears has also been kept down by rules introduced after the financial crisis, which ensured that borrowers would be able to afford their loans even if interest rates were increased.
Pepper Advantage, a company that is more vulnerable to Britons in financial distress, reported rates as high as 11 % in the poorer regions of the Northeast and Yorkshire from July to September. Southern regions, however, had rates around 5%. Borrowers aged 51 and older had the highest rates of missed payments.
The report warns that “the growth in arrears is not yet at its peak” because the rate of direct debit rejections continues to increase, albeit more subtly.