The growth in the arrears rate is a reflection of consecutive rises in the percentage of mortgages which have experienced a DDR
Data published by Pepper Advantage on its portfolio of more than 100,000 UK residential mortgages, showed a 23.3% annual rise in the arrears rate for the third quarter of 2023.
The growth in the arrears rate is a reflection of consecutive rises in the percentage of mortgages which have experienced a Direct Debit Rejection (DDR). Year-on-Year, the DDR rate for Q3 rose by a significant 19.3%.
Nevertheless, this was smaller than the annual rise of 33.3% logged in April.
Pepper Advantage expects a bleak short-term picture for mortgage holders, with the macroeconomic pressure on borrowers set to continue to affect arrears in Q4 and going into next year.
It is an evaluation with which the BoE would agree, as its latest Credit Conditions Survey forecasted a higher number of defaults in Q4 2023.
This is partly because of the central bank’s estimation that just 20 to 25% of the effect of interest rate hikes has filtered through into the economy.
The research from Pepper Advantage’s further underlines the headwinds with which borrowers are struggling including unpaid essential bills, depleted savings and a rising proportion of disposable income spent on mortgage repayments.
The fact that the DDR rate is still rising, albeit less sharply, suggests that the growth in arrears has not yet peaked.
Breaking down the arrears it was found that the rate of fixed rate mortgages in arrears rose 15.5% quarter-on-quarter, and 53.7% annually.
Although it should be noted that these come from a low base, and the absolute percentage of fixed rate arrears remains small.
Nevertheless the rate of variable mortgages in arrears soared by 5.6% quarter-on-quarter, and 29.1% YoY off a much higher base.
Around one in four variable rate mortgages in Pepper Advantage’s portfolio is presently in arrears.