overpay mortgage arrears

Buy-to-let mortgage arrears “remain low” at less than 0.5%

Mortgage holders are being urged to speak to their lender before getting into difficulty after a rise in overall mortgage arrears, but the percentage falling behind remains small. 

There has been an increase in the number of mortgaged properties – both homeowner and buy-to-let – being taken into possession in the second quarter of 2023, according to data from UK Finance, which comes as the Bank of England has continued to raise its base rate on 14 consecutive occasions.

While the vast majority of mortgage holders are able to keep up with the new rates, and with stricter lending criteria meaning mortgages are stress tested to a high level to ensure affordability, the data shows that some in the market are feeling the strain.

Honing in on the buy-to-let mortgage arrears picture, the data shows that 8,980 buy-to-let owners were in mortgage arrears of 2.5% or more in Q2, which is 28% higher than Q1. This accounts for 0.44% of all buy-to-let mortgages during the time period, which a spokesperson pointed out “remains low”.

Possessions at “historic lows”

UK Finance’s report also found that there were 4,810 buy-to-let mortgages in the lightest mortgage arrears band of between 2.5% and 5% arrears, which is a 41% rise on Q1’s figures. In total, 440 mortgaged buy-to-let properties were repossessed in Q2, a small rise of 7% on the previous quarter.

However, in the higher mortgage arrears brackets, of 5% and above, there has been very little change, according to the figures.

Commenting on UK Finance’s latest data, a spokesperson said: “The number of mortgage holders in arrears rose in Q2 as higher mortgage rates and the cost of living continued to weigh on households.

“Although any rise in arrears can be worrying, overall numbers remain low with less than one per cent of homeowners and less than half a per cent of landlords behind on their payments.

“Lenders have been preparing for any continuing increases in arrears, for example with the launch of the Mortgage Charter, and have already helped over 200,000 borrowers before they have got into financial difficulty by restructuring their repayments.

“The number of homeowner and buy-to-let possessions in Q2 remain close to historic lows but are expected to continue to rise in line with our mortgage market forecast given the ongoing cost of living challenges.”

Help is available

In recent weeks, while rates remain much higher than they were two years ago, a number of lenders have begun to bring their rates down again. Barclays and Paragon Bank are two such lenders, who have reduced buy-to-let mortgage rates in response to the increased stability of the swaps market.

Paragon Bank has reported an increase in demand for its two-year options, as landlords remain confident that inflation and interest rates will come down during that period, at which point they may be able to remortgage onto a better rate.

However, as the UK Finance spokesperson points out, there are options to take before you fall into mortgage arrears: “It’s important for homeowners and landlords to remember that there is support available to anyone struggling with their finances. If you think you might have difficulty making your mortgage payments, reach out to your lender early to find out the options available.”

Chancellor Jeremy Hunt also recently announced a government-backed support measure, allowing borrowers to contact their lender for information and support without it affecting their credit score, and preventing anyone from being repossessed within 12 months of their first missed payment.

Mortgage customers can also lock into a deal six months ahead of their current fixed rate ending, but can apply for a better deal right up until the new one starts. Some customers can also switch to an interest-only product for six months, along with other measures to reduce payments and prevent mortgage arrears.

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