This growth in the arrears rate follows consecutive hikes in the percentage of mortgages that experienced a Direct Debit Rejection
Global credit intelligence provider Pepper Advantage, which has a 100,000+ UK residential mortgage portfolio, says arrears in the country have seen a 23.3% annual surge.
And it says the rate of Direct Debit Rejections, a form of missed mortgage payment and a leading indicator of borrower stress, added 19.3% over the same period.
This growth in the arrears rate follows consecutive hikes in the percentage of mortgages that experienced a Direct Debit Rejection.
Pepper Advantage says it expects macroeconomic pressure on borrowers to continue to impact arrears in Q4 and into next year. This evaluation was mirrored in the BoE’s latest Credit Conditions Survey, which forecast defaults to rise in the fourth quarter. This is partly because of the central bank’s estimate that just 20% to 25% of the impact of interest rate rises has so far filtered through into the economy.
Breaking down the arrears rate by product type, region and age shows that some groups are under particular stress.
The regions with the highest absolute rate of arrears are the North East, Yorkshire and Humberside, and the North West, which had arrears rates between 9.0 and 11.0% in the third quarter of 2023. The South East, South West and Greater London had the lowest arrears rates in the UK, each around 5.0% to 6.0%.
Gerry McHugh, CEO of Pepper Advantage UK, says: We are supporting customers during this difficult time as the increasing cost-of-living, reduced household savings and increasing interest rates combine to put pressure on borrowers. Unfortunately, we expect the situation to get worse before it gets better. Our real-time credit intelligence gives us and our clients the information to provide appropriate support to the borrowers who require it, including measures like interest rate reductions or extending mortgage term lengths.