Recent data reveals a concerning 25% increase in the number of homeowners in mortgage arrears over the past year. The final quarter of 2023 saw homeowner mortgages in arrears rise by 7%, totalling 93,680, marking an increase of 5,750 compared to the previous three months, according to UK Finance.

Buy-to-let mortgages in arrears followed suit, experiencing an 18% surge to 13,570 in the same period, resulting in a staggering 124% year-on-year increase. An alarming situation is unfolding for an estimated 1.5 million homeowners and 230,000 buy-to-let landlords, as fixed-rate mortgage deals are set to conclude this year.

The preceding year witnessed a series of base rate hikes and disappointing inflation figures, propelling average two-year fixed mortgage rates to a summer peak of 6.86%, according to Moneyfacts. Five-year fixed rates reached 6.37%. While recent reductions brought two-year fixed rates to 5.58% and five-year fixes to 5.22%, they remain substantially higher than the 2-2.5% averages recorded before the 2022 surge in interest rates.

Mortgages in arrears presently constitute 1.07% of all outstanding homeowner mortgages and 0.69% of buy-to-let mortgages. Despite the rise, UK Finance reports that the number of repossessions remains remarkably low, with a total of 1,040 homes repossessed in the final quarter of 2024. This figure is notably lower than the nearly 2,000 repossessions in the same period in 2019 before the onset of the pandemic.

Scott Taylor Barr, Principal Advisor at Barnsdale Financial Management, emphasizes the need for context when interpreting statistics, stating, “Even with this increase, only 1.23% of total UK mortgages are in arrears, and from a macroeconomic viewpoint, that’s a tiny amount.”

Lender stress tests are credited with assisting borrowers in maintaining mortgage payments amid rising interest rates. Despite supposed relaxation in 2022, when the Bank of England dropped affordability stress testing requirements, lenders continue to implement measures ensuring borrowers can manage repayments even with interest rates exceeding those at the initiation of their mortgages. Previously, borrowers had to demonstrate affordability even if their mortgage rate increased by 3% above the lender’s standard variable rate.