Mortgage Crisis: Homeowners Struggle to Repay Debts Amid Rising Costs

The latest data from the Bank of England reveals a worrying trend: more homeowners are falling behind on their mortgage payments than at any time in the last seven years. The financial squeeze caused by the pandemic and rising cost of living has left many struggling to cover basic expenses, let alone repay debts.

Mortgage arrears have risen to their highest level since 2016

The bank’s report for Q1, 2024 shows that mortgage balances in arrears rose by 4.2% compared to the previous quarter, totalling a staggering £21.3 billion. This is also a 44.5% increase from a year earlier. The proportion of total loan balances with arrears relative to all outstanding balances increased from 1.23% to 1.28%.

“Missing multiple payments can result in the property being repossessed, but there is help available for those struggling to stay ahead of their debts.” - MoneySavingExpert.com

The situation is further complicated by the fact that many households are set to face higher mortgage costs this year as fixed deals agreed two or five years ago expire. New research from Moneyfacts Compare suggests that those who are coming to the end of a five-year fix this month can expect to see the interest they pay almost double, with average rates rising from 2.85% to 5.5%.

 Mortgage rates are on the rise

First-time buyers are also feeling the pinch, with many willing to move up to 40 miles away to get on the property ladder. Research from Moneybox found that 35% of those surveyed feel optimistic about becoming homeowners in the UK currently.

“It’s heartening to see how first-time buyers are adapting and striving to make their dream of owning a home come true.” - Brian Byrnes, head of personal finance at Moneybox

The average cost of fixed-rate mortgages has continued to trend upwards, with the number of lenders increasing rates outnumbering those imposing rate cuts. Data from Moneyfacts shows that over the last seven days, the cost of an average two-year fix rose by 0.02%, the average three-year fix by 0.04%, and the average five-year fix by 0.01%.

The mortgage crisis is far from over

As the situation continues to unfold, it’s clear that more needs to be done to address housing supply and sustainably boost homeownership. The next government must take action to future-proof the Lifetime ISA and help more people save for their first home deposit.

“We believe first-time buyers deserve all the help they can get, and so we are calling on the next government to future-proof the Lifetime ISA and help more people save more money towards their first home deposit.” - Brian Byrnes, head of personal finance at Moneybox