News Analysis: Backlogs Reach Highest Level in 12 Years


With mortgage arrears hitting £2.05bn at the end of the first quarter (Q1) of 2022 – the highest level for 12 years – property professionals expect that figure to rise further this year.

Regulated and unregulated mortgage arrears hit historic totals in March, the highest figure since June 2010, when arrears reached £2.09bn, according to data from the Bank of England and the Financial Conduct Authority.

The 12-year high comes as homeowners face a perfect storm of taxes and higher living costs stemming from post-pandemic supply chain issues, post-Brexit slowing growth and of the Russian-Ukrainian war, all of which should be played out this year and until 2023.

Grocery sales fell 1.6% in the three months to May as “reduced spending at grocery stores appears to be linked to the impact of higher food prices and cost of living,” the Office for National Statistics (ONS) said last week.

Energy bills jumped 54% in April and are set to rise even more in October as price caps set by Ofgem are set to rise for the second time in a year, taking average annual household fuel bills to £3,500 .

Also in April, National Insurance contributions were raised by 1.25% for employees and employers, and Council Tax increases were introduced, on top of a four-year freeze on thresholds. last year’s income tax.

These increases will take the UK’s overall tax burden to 35% of gross national product by 2025-26 – the “highest level since Roy Jenkins was chancellor in the late 1960s”, according to the Office for Budget Responsibility.

All of this led to inflation soaring to 9.1% in the 12 months to May as prices continued to rise at their fastest pace in 40 years, driven by soaring commodity prices. food and energy, according to the ONS.

Britain’s economy grew 0.8% in the first quarter of 2022, but shrank 0.1% in March and 0.3% in April, according to the ONS, as rising prices started to take hold. ravages.

Many economists predict that the UK economy will slip into recession within the next 12 months.

“This combination of factors forces people to choose which bill they will pay at the end of the month,” says Matthew Carter, partner at Mazars tax advice.

“Overdue mortgage bills can spike two to four months before companies take more serious action. This can cause homeowners to give these bills a lower priority, even if it’s a bill that keeps the roof over their heads.

“Pressure does funny things to people.”

Carter adds that the mortgage market will start to look very different this year as borrowers seek new deals and those with standard variable rates seek more secure fixed rate products to avoid arrears.

He says, “Rising interest rates will change the mortgage market. There will be fewer products to choose from, and they will be more complex and more expensive.

Director of Your Mortgage Decisions Dominik Lipnicki said interest rates began to rise weeks after the Bank of England began a series of five consecutive base rate hikes (currently at 1.25% ) from last December.

The average standard variable rate paid by about two million borrowers hit 4.91% in early June, the highest level in 13 years, according to Moneyfacts. This is an increase of 0.51% from last December and is the highest since February 2009.

“The hikes we’ve seen have tended to rise at a much higher rate than the Bank’s hike, adds Lipnicki. “With inflation where it is, they can only go one way, and that is on the rise, so while fixed rates will be higher, more people will of course want them to provide much-needed stability.

“We are seeing and will continue to see more and more borrowers who want longer term fixed rates of five, seven or even 10 years. I wouldn’t be surprised if longer-term fixed rates could at some point reach 4% or 5%. »

Lucy Barrett, managing director of Vantage Finance, agrees that the market is already moving rapidly. She says that, if customers “are not ready to transact in days or hours, the product may well be gone by morning.”

Barrett adds: “We offered commercial products to clients where the fixed rate was 1% higher when securing it a few weeks later.

“There was a time when it seemed to stabilize, but it was short-lived and the climb continues. Where clients with good deposits borrowing in the traditional mortgage market would expect to see rates starting with 1 , it is not inconceivable that 3 or 4 will look very good soon.

Barrett suggests the best decision for borrowers currently on standard variable rates might be to talk to a broker about their options rather than rush into a fixed rate deal.

She says. “It might not be the best decision and without a crystal ball it’s hard to say, but the time to correct was late last year or early this year given the rapid changes of the market.

“The cost of living squeeze will create more anxiety among mortgage holders for peace of mind, but the question will be what price they are willing to pay for it.”

This year will be marked by millions of standard variable rate and mortgage borrowers crowding into a rising market, experts say.


This article originally appeared in the July issue of MS.

If you would like to subscribe to the monthly print or digital magazine, please click here.

Previous Blog: Diverse real estate portfolios are the way to go
Next Fixed rates continue to rise at record pace: Moneyfacts