Mortgage defaults jump - and there may be worse to come

Banks are reporting that default rates increased in the final quarter of 2023, albeit more slowly than the quarter before - but there are fears the situation could worsen. 

Lenders contributing to the Bank of England’s latest quarterly credit conditions survey - released just before the weekend - default rates on secured lending including mortgages rose in the October-to-December period. 

A net balance of 23.6 per cent of lenders reported an increase in defaults - that’s down from 43.3 per cent in the quarter before, indicating that defaults are still growing but at a slower rate. However, a net 39.7 per cent of lenders think the default rate will rise again in the immediate future. 

Mortgage arrears hit a six-year high in the three months to December, Bank of England data showed, although this was up from historically low levels. The figures show that 1.14 per cent of total loans are in arrears - historically this is still quite low, compared to 3.64 per cent in the first quarter of 2009 for example.

Various experts told news service Newspage of their responses to the news.

Stephen Perkins, managing director at Yellow Brick Mortgages: “The incessant pressure on household finances is evident in the form of continued rises in the level of defaults on secured and unsecured debts. After cutting back where possible and exhausting all available credit options, many households are now at breaking point. Rate reductions on mortgages will help some but are coming too late for many. These figures will look even worse over the coming months. For many, the mortgage rate reprieve we’re currently in will sadly be too little, too late.”

Michelle Lawson, director at Lawson Financial: “Sadly, I don’t think these stats are much of a surprise. There is literally no money left anywhere and households have had so much pressure with increased mortgage costs, inflation-hit shopping and astronomical utility bills. People can only take so much before things start to break. Property isn’t easy to sell at the moment if there is a downsizing option and this also doesn’t come without costs. I would expect these default figures to rise further as some households will be left with nowhere to go. Many people have simply run out of road.”

Hannah Bashford, director at Model Financial Solutions: “Sadly, I don’t find this data surprising and I don’t think we have seen the worst of the level of defaults. The interest rate rises that have increased expenditure have been compounded by the cost of living crisis and have not yet filtered through into the data. Whilst households hang on by their fingertips using unsecured credit or savings to help make repayments, it is inevitable that some simply won’t be able to keep up and will default. The interest rate decreases we are currently seeing will go someway to help but sadly it is going to be too late for some.”

Riz Malik, founder and director at R3 Mortgages: “The increase in default rates is concerning and highlights that we are certainly not out of the woods yet.

“Those who are struggling should speak to their lender or seek advice to see if there are any other options to restructure their debt as early as possible.”