Mortgage rates: Bank of England reveals sharp rise in arrears as interest rate hikes hit homeowners

The Bank of England revealed a sharp rise in people falling behind on their home loan payments today, as its long run of interest rate hikes pushed up mortgage arrears. 

Official figures from Threadneedle Street showed that the value of outstanding mortgage balances that are behind on payments in the final quarter of 2023 hit £20.3 billion, up by over 50% year-on-year and 9% from the third quarter of last year.

 And the proportion of the UK’s total outstanding home loans that were in arrears in the period rose to the highest since 2016 at 1.23%. 

 Craig Fish, a director at Lodestone Mortgages & Protection : “This report clearly demonstrates the real struggles being faced in the mortgage market right now.” 

Speaking to the Newspage agency, he added:  “People are genuinely struggling to afford their significantly increased mortgage payments.”

And the value of gross mortgages in the quarter fell by over a third year-on-year to £54.3 billion as the slowdown in the housing market took hold. 

 The data came from the final three months of a year when interest rates hit a 16-year peak at 5.25% in August. That followed a run of 14 consecutive hikes from the BOE’s monetary policy committee, designed to fight off double-digit inflation stoked by soaring energy bills after Vladimir Putin’s invasion of Ukraine. 

With inflation now heading back toward the BOE’s 2% target and rates on hold for seven months, a rate cut is expected later this year. But there has been concern among City experts that the wholesale financial markets have moved too far too fast to factor in the cuts. 

 In turn, that has led to the rates on the mortgage rates on offer to borrowers to turn around from a sustained decline to bounce back up above 5% on a typical five-year fixed rate. 

 Brokers and borrowers alike have spoken out against the recent rebound. It has also come as a series of updates from major house builders have revealed the impact of the house market slowdown. 

 Robert Timm, managing director at Sunland Mortgages, said: “There will be a lag on this data too, as more and more borrowers will be rolling off low fixed rates onto significantly higher rates. 

 “If anyone is struggling, they should engage with their current lender, who will hopefully have signed up to the Mortgage Charter, and have options available to help in the short term.”

 Shares in Persimmon hit the bottom of the FTSE 100 today after it revealed a 50% slump in annual profit. It also warned that conditions in the house market in the south and east of the UK “remains more challenging with weaker pricing”.

 That bleak outlook also came through in today BOE data. The value of new mortgage commitments for home loans offered in the fourth quarter for “the coming months” dropped by almost 7% from the third quarter to £46 billion, down by over a fifth year-on-year. 

 Excluding the pandemic, that is the lowest since  the first quarter of 2013, according to the BOE.

Lodestone’s Fish said: “Let's hope these numbers serve as a wake-up call to the decision makers on Threadneedle Street that something has to be done sooner rather than later.”