Mortgage arrears fell to an historic low in the first quarter of this year following a series of record low interest rates.
The value of outstanding mortgage balances with arrears decreased by 1.1 per cent between January and March, falling to £13.3bn. Over the year, this marks a 11.3 per cent decrease.
This means arrears account for 0.82 per cent of outstanding mortgage balances, the lowest level since 2007 when records began according to data published by the Financial Conduct Authority and the Bank of England yesterday (June 14).
The value of gross mortgage advances during the last quarter also jumped by £6.7bn, to £76.9bn - though this final figure is still down 7.5 per cent on Q1 2021.
Last year, sub-1 per cent mortgage rates were on offer to homeowners for the first time in the UK’s history, making last year one of the cheapest years to lock in a fixed rate.
Mortgage borrowing also continued to grow in the first three months of this year despite last year’s ‘slump’ in April. The value of new mortgage commitments was 6.7 per cent greater than the previous quarter, and 6.6 per cent greater than a year earlier, sitting at £82.5bn.
The outstanding value of all residential mortgage loans also increased, to £1.6tn at the end of March, up 1 per cent over the quarter and 4.4 per cent over the year.
A ‘very different environment’ ahead
Despite record-low arrears at the start of this year, some brokers are quick to point out the fast-changing market
While those homeowners who locked in fixed rates before mortgage interest rates began to rise again in November are “insulated for some time”, those coming out of a fixed rate this year will be faced with a “very different market”, one warned.
“It’s important to point out that those lucky enough to get in before October will be insulated for some time,” associate director at L&C Mortgages, David Hollingworth, told FTAdviser.
“But some people will be coming out of deals into a very different environment. They’ll be contending with something of a jump in rates. The question will be: how well can households manage that?
“If we’re talking 2.5 to 3 per cent, that’s still not radically high in terms of historic mortgage rates. But it’s how much people suffer from rate shock.”
Hollingworth said there is still time for this to play out, but that he is seeing clients shop around sooner rather than later.
“This is something the Bank of England will have to weigh up carefully,” he added. “We are heading into more difficult times.”
Analysis by L&C Mortgages shows the average two-year fixed rate from the UK’s biggest lenders now stands at more than three times the rate on offer last October.
In June, the average two-year fixed deal was 2.71 per cent and the five-year fix was 2.78 per cent, compared to their record low counterparts in October of 0.89 per cent and 1.05 per cent, respectively.
ruby.hinchliffe@ft.com
