Cash-strapped mortgage holders in the UK are struggling to make their payments and facing rejected debit cards as high interest rates put pressure on their finances. According to a report from Pepper Advantage Technologies, a loan-servicing provider to banks, mortgages in arrears rose by 23% between July and September compared to the previous year, reaching the highest quarterly rate since the 2008 global financial crisis. Direct debit rejections also increased by almost 20% during the same period.
Gerry McHugh, Chief Executive Officer at Pepper Advantage, warned that the situation is likely to worsen before it improves. He cited the increasing cost of living, reduced household savings, and rising interest rates as factors putting pressure on borrowers. The British housing market is facing a combination of expensive borrowing, economic uncertainty, and the worst cost-of-living crisis in a generation. Mortgage prices have surged in the past year, with the average two-year fixed-rate mortgage still well above 6%.
Pepper Advantage’s portfolio, which includes borrowers under forbearance arrangements with lenders, experienced a 54% year-on-year increase in the rate of fixed mortgages in arrears in the third quarter. Arrears in variable mortgages, which track interest rates, rose by 29% during the same period, with one in four of those loans now behind in payments.
The loan-servicing provider manages mortgages for specialist lenders like Metro Bank and has around $55 billion in assets under management. Approximately 10% of its portfolio includes distressed mortgages held by customers who have been granted payment support, such as term extensions, rate reductions, or switched to interest-only mortgages. This percentage is estimated to be more than twice the share of mainstream lenders’ portfolios.
Pepper Advantage CEO, Gerry McHugh, stated that direct debit rejections and arrears are most pronounced among borrower groups that have historically faced difficulties. However, it is important to note that the overall volume of loans in arrears remains low as only a small proportion of home loans have come up for renewal since the Bank of England began raising rates. Regulations introduced since the financial crisis to ensure borrowers can afford their loans if rates increase have also helped keep the volume of arrears under control.
Despite this, Pepper Advantage, which is particularly exposed to financially strained individuals, reported arrears rates as high as 11% in poorer regions in the north-east and Yorkshire between July and September. Southern regions had rates of about 5%. Borrowers aged 51 or older showed the highest levels of missed payments.
The report from Pepper Advantage warns that although the rate of direct debit rejections is increasing at a slower pace, indicating that the growth in arrears has not yet peaked, borrowers are still facing significant challenges in meeting their mortgage payments.
More detail via The Straits Times here… ( Image via The Straits Times )