Latest data underscores a growing challenge
Cost-of-living pressures and higher product rates are now directly impacting homeowners, it’s suggested, as new data highlights a worrying surge in mortgage repossessions.
The latest quarter saw a total of 6,525 mortgage possession claims, marking a 56% yearly increase and a significant 77% increase from the same quarter in 2022, according to the latest data from the Ministry of Justice.
Mortgage possession claims for 2024 so far are at 17,055, compared to 12,214 at the same point in 2023, and underscores a growing challenge. London boroughs accounted for six of the 10 local authorities in the UK with the highest rate of claims, observes the financial services consultancy, Broadstone. Based in the capital, it has arguably seen plenty of ups and downs in the economy during more than 40 years in business.
“The data highlights the pressures of the current economic climate, with the rising cost of living and higher mortgage rates now tangibly affecting homeowners,” said Tom Cuppello (pictured), Broadstone’s director of risk. “While a post-pandemic rise in possessions was expected due to earlier FCA guidance that temporarily suppressed repossessions, the rapid increase in the last six months is concerning. This trend aligns with recent mortgage arrears data, which also points to economic challenges intensifying the strain on borrowers.”
How much are higher rate mortgages contributing to repossessions?
Cuppello, who is part of a team of over 650 consultants at Broadstone, acknowledged that the harsh reality of high-cost mortgages may be a long-term impact, as high interest rates continue to feed through. Even a perceived respite delivered by the Bank of England’s Monetary Policy Committee’s decision to twice cut the base rate may bring short-lived joy.
“The recent interest rate cut by the Bank of England was a welcome move, but with the Bank now expected to take a much slower, more gradual approach to further cuts, relief for mortgage holders may be limited in the months and years ahead,” Cuppello said.
Although recent mortgage arrears have been rising, the Ministry of Justice data indicates that the rate of growth has slowed in recent months, Cuppello highlighted.
“Since arrears often serve as an early indicator of default risk, this deceleration may suggest that the pace of possession claims could eventually stabilise,” he reasoned. “However, with cost-of-living pressures and high mortgage rates unlikely to cool down anytime soon, financial strain is expected to continue in the near term.”
Read more: How can brokers support customers facing repossessions?
Should lenders be more cautious before approving mortgages?
Some might consider that in the current economic climate there is a case for exercising more caution before declaring that a mortgage applicant is suitable to borrow, but Cuppello believes it would have been difficult to foresee recent economic turbulence.
“Affordability has long been a core focus in mortgage lending, with the FCA emphasising its importance,” he said. “Most lenders use robust affordability algorithms to ensure a thorough understanding of a borrower’s financial situation before issuing a loan. That said, recent economic shocks and rate increases would have been challenging to factor into historic affordability assessments.”
Moving forward, lenders should ensure that affordability calculations reflect the latest data to capture customers' actual expenditure and adapt to the current financial landscape, Cuppello added.
Every cloud has a silver lining, it seems, and the current rate of mortgage repossession claims may prove advantageous for the livelihoods of specialist lenders.
“A broader increase in arrears could certainly result in a rise in customers with adverse credit histories who may benefit from specialist finance options for future credit needs,” Cuppello said. “Specialist finance providers are well-suited to support this group, offering credit solutions tailored to those with adverse or complex credit profiles.”
Lenders need to be prepared to navigate this landscape, Cuppello urged, continuing to support borrowers facing financial strain while staying resilient against the pressures of rising possessions.
“Lenders across the market should also proactively engage with customers in financial difficulty, using diverse data sources to identify early signs of strain and offering solutions to help them manage obligations sustainably before repossession becomes necessary,” he said.
