Mortgage arrears to 'rise 30%' in no-deal Brexit

Mortgage arrears to 'rise 30%' in no-deal Brexit

A no-deal Brexit could lead to a substantial rise in mortgage arrears, Kensington Mortgages has warned. 

Data modelling by the specialist lender has projected a possible 30 per cent increase in mortgage arrears across the market over the next three years should Britain leave the EU without a deal. 

Kensington tested a series of scenarios via its risk-modelling tool Vector, based on a representative data set of 750,000 loans across the UK mortgage lending market. 

Working on the assumption of a no-deal Brexit, with no government intervention, the model shows there would be a sharp increase in the number of borrowers who would likely fall more than three months behind on their repayments compared with a no Brexit scenario.

The modelling also predicted the number of repossessions could increase by 10 per cent. 

This means that by Spring 2022 there could be 70,296 people that are more than three months behind on their mortgage repayments, compared with 52,755 if the country remained in the union. 

Mark Arnold, CEO, Kensington Mortgages, said: "Leaving the EU with no deal in place would, according to our model, see more homeowners struggle to make their monthly payments.

"Our expectation, however, would be that if we did end up exiting without a deal then the Bank of England would step in, as Mark Carney has hinted recently, and stabilise the market.

"Yet that would come at a cost to the taxpayer, with the public finances propping up homeowners at other people’s expense."

Mr Carney, the Bank of England governor, said in October the Bank could loosen its capital requirements and free up banks to lend as much as £300bn more into the economy in the event of a no-deal Brexit, in order to support a struggling housing market.

Kensington's modelling also found that five years following a no-deal Brexit, about one million people would still be paying a mortgage that they would have either refinanced or paid off completely under current conditions. 

This, Kensington explained, would be driven by a decline in house prices and reduced mortgage finance availability. 

Over the same five-year time frame, new mortgage lending would drop by about 17 per cent relative to what would be expected without a British departure from the EU, and comparatively benign housing market conditions.

Mr Arnold said: "The data shows that more and more people are struggling to get on the housing ladder, with the number of mortgages falling every year since 2008.

"If there were an intervention it would mostly benefit existing homeowners by inadvertently artificially propping up prices, to the detriment of would-be first-time buyers.

"So there would likely be some collateral damage under a no-deal scenario, and the number of mortgages may fall further still as a result."

The base case analysis used by Kensington assumed an 18 per cent rise in house prices over the following five years, and flat unemployment, similar to the models used by the Office of Budget Responsibility.