New Data Shows UK Residential Mortgage Arrears Improve for First Time Since Mini-Budget but Stress Appears in Buy-to-Let
30 Julio 2024 - 2:00AM
Business Wire
- Residential mortgage arrears rate drops 0.6% in Q2; first
fall since 2022
- Buy-to-let arrears increase 10.9%, signalling pressure on
landlords
- New originations recover
Pepper Advantage, a global credit intelligence company, today
published data on its portfolio of over 100,000 UK residential
mortgages that shows the overall rate of mortgage arrears* growth
has dropped to only 1.1% in Q2 2024. This marks the third
consecutive quarterly decrease in the arrears growth rate across
the company’s UK portfolio, which fell from 5.7% in Q4 2023 to 3.9%
in Q1 2024.
Key points from the report include:
- The arrears rate for residential mortgages fell 0.6% compared
to Q1 2024. This is the first drop in residential mortgage arrears
since Q3 2022, when the UK’s Mini-Budget shocked markets.
- Buy-to-let (BTL) mortgages saw 10.9% quarterly growth in the
arrears rate, suggesting landlords are struggling as fixed rate BTL
mortgages expire and are refinanced onto higher rates.
- BTL borrowers’ average loan size is 164% greater than that of
the average residential borrower, exposing landlords to more
significant monthly payment increases when they move to higher
interest rates.
- New originations increased 20.9% over Q1 2024 and 53.5% over
the second quarter of 2023, hitting the highest level since Q4
2022.
While the overall UK arrears environment showed signs of
improvement, growth trends were distinct between Northern and
Southern regions.
- North of England, Scotland, and West Midlands: These
regions continue to have the highest absolute arrears rates but
were also the only regions to see a quarterly decline in arrears.
The North East, North West, Scotland, and Yorkshire and Humberside
saw their arrears rates drop 2.5%, 0.4%, 8.1% and 0.4%,
respectively, while the West Midlands’ rate of arrears remained the
same.
- Southern England, East Midlands, and Wales: The South
continued to have the lowest levels of absolute arrears but saw the
highest rates of arrears growth. The arrears rates for Greater
London, the South East, South West, Wales, and East Anglia grew
6.0%, 3.4%, 3.2%, 1.5%, and 1.1%, respectively. The East Midlands
saw mild growth of 0.2%.
Arrears trends were reflected in Direct Debit Rejections (DDRs),
a form of missed mortgage payment that typically occurs due to
insufficient funds when a direct debit is called, an early
indicator of borrower stress:
- The overall DDR rate for the UK showed a modest increase of
0.4% compared to Q1 2024.
- The increase was driven by stress in the BTL market. BTL
mortgages saw a 31.3% quarterly jump in DDR rates compared to an
increase of just 4.6% in Q1 2024.
- This compares to a 7.3% drop in the DDR rate for residential
mortgages.
Aaron Milburn, UK Managing Director for Pepper Advantage,
said: “So far this year, every quarter has shown gentle
improvement in the mortgage market. Arrears rates for residential
mortgages may have plateaued and new originations are climbing,
despite persistently high interest rates. Data from the past three
quarters suggests certain segments of the market are recovering
while others lag behind.
“The buy-to-let market often attracts criticism but is a crucial
part of the housing market that requires stable supply and demand.
The uptick in BTL arrears reflects growing structural issues within
the rental market as landlords struggle to keep up with higher
costs – presenting potential risks not only to landlords’ finances
but also rented housing supply more broadly.
“Overall, our latest data is cause for cautious optimism as the
market appears to be turning a corner, but key segments such as BTL
require attention given remaining pressures.”
Pepper Advantage’s UK Credit Intelligence report is published
quarterly. The Q1 2024 report (available here) showed slowing
growth in arrears in the first three months of the year.
* Mortgages in arrears are defined as those that are 30+ days
delinquent in payment.
About Pepper Advantage
Pepper Advantage is a global credit intelligence company that
offers a range of data led and credit management services via a
technology platform that spans across Asia, Europe, and the United
Kingdom. The company, with $55 billion (USD) assets under
management, operates in multiple asset classes including
residential and commercial mortgages, real estate, SME loans, asset
financing and leasing, auto and consumer loans, credit cards,
retail finance and BNPL, in addition to offering outsourced
operational support services to both financial and non-financial
clients. It helps investors, financial institutions, fintechs, and
banks manage their credit portfolios, reducing the cost and
complexities of systems and supporting new non-bank lending, with a
particular focus on clients whose customers are underserved by
traditional mainstream lenders.
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