Lender’s internal data reveals shocking fast-growing arrears

Global intelligence company Pepper Advantage, which has a portfolio of over 100,000 UK residential mortgages, says there’s been a dramatic increase in arrears.

It’s released internal data showing a 29.5 per cent annual increase in the arrears rate in the fourth quarter of 2023, which is 5.7 per cent higher than the previous quarter, to reach a new post-financial crisis high.

This growth in the arrears rate follows successive increases in the percentage of mortgages that experienced a Direct Debit Rejection, where a direct debit instruction is processed by a creditor but there are insufficient funds in the borrower’s account. 

Pepper Advantage’s Q4 DDR rate grew 30.8 per cent year-on-year. The lender says this increase is mirrored by UK government data from the Office for National Statistics where the DDR rate for all credit payments across the UK grew 15 per cent in December 2023 compared to December 2022.

Pepper Advantage expects macroeconomic pressure on borrowers to continue to impact arrears in 2024. Inflation unexpectedly rose in December, underlining compounding pressures on households that are navigating both high living costs and elevated interest rates. 

Breaking down the arrears rate by product type, region and age reveals groups that are under particular stress:

·         Residential mortgage arrears grew 5.6 per cent compared to Q3 and 29.0 per cent year-on-year;

·         The percentage of variable rate mortgages in arrears percentage grew 5.7 per cent quarter-on-quarter and 29.6 per cent year-on-year;

·         The percentage of fixed mortgages in arrears grew 13.0 per cent quarter-on-quarter and 65.7 per cent year-on-year from a very low base;

·         Regionally, the North East, Yorkshire and Humberside, the North West, and the West Midlands had the highest absolute rate of arrears in the UK. The South East, South West and Greater London had the lowest;

·         Every age group experienced growth in the arrears rate that ranged from 0.3 to 0.8 percentage points quarter-on-quarter. Those aged 51-60 and 60+ showed the highest level of arrears, followed by those aged 41-50;

·         The percentage of residential mortgages that experienced a DDR grew 6.9 per cent quarter-on-quarter and 30.8% year-on-year, marking a more dramatic increase compared to Q3.

Gerry McHugh, Pepper’s chief executive officer, says: “We are continuing to support customers during this difficult time as the increasing cost-of-living and persistent inflation heaps more pressure on UK borrowers. The continued growth of DDRs – which had previously begun to slow – unfortunately suggests that we are not out of the woods.

“We are investing in our real-time credit data for times like these, so we can arm clients with the information they need to provide the right support to the borrowers.”