Rate of UK mortgage arrears growth slows to lowest since September 2022

Rate of UK arrears growth slowed to 3.9% in Q1 2024 from 5.7% in Q4 2023, the lowest quarterly growth rate since the September 2022 mini-budget, reveals new data from Pepper Advantage.

The percentage of mortgages in arrears across Pepper Advantage’s UK portfolio grew by 3.9% in Q1 2024 compared to Q4 2023.

This figure compares to a quarterly growth rate of 5.7% in Q4 2023 and 7.0% in Q3 2023. 

While the rate of arrears growth has slowed, the absolute rate of arrears remains at the highest level since 2008.

Furthermore, the Northeast and Northwest were the only UK regions in which the rate of arrears growth increased, while the West Midlands and East Anglia showed the lowest growth rates of only 0.4% and 0.5%, respectively. 

The Southeast, Southwest and Greater London had the lowest absolute arrears rates in the UK, while the Northeast, Northwest, and Yorkshire and Humberside had the highest.

The analysis showed that older age groups have the highest absolute arrears rates – homeowners aged 60+ and 51-60 saw the first and second highest levels of arrears respectively, followed by those aged 41-50.

However, every age group saw lower growth in the arrears rate in Q1.

This trend was particularly noticeable for mortgages owned by people aged 31-40, which grew by only 0.1 percentage points quarter-on-quarter, possibly due to a combination of stabilizing inflation and healthy wage growth.

Furthermore, the percentage of residential mortgages that experienced a direct debit rejection (DDR) fell 2.3% in Q1 2024 compared to Q4 2023.

This is the first quarterly decrease since Q2 2023 and breaks the trend of DDRs typically increasing following the December holiday period.

Aaron Milburn, UK managing director at Pepper Advantage, said: “While the slowing growth in the rate of arrears and lower direct debit rejections are welcome news for lenders and borrowers, the picture remains complex, and the overall level of arrears is still the highest since the 2008 financial crisis.

“The slowing growth suggests an increasingly resilient UK economy as lower inflation and higher-than-expected wage increases alleviate pressure on household budgets in some areas.

“However, the disparity seen between regions and age groups shows that financial challenges are not evenly spread.

“The Q1 data contains some hopeful indicators, but it is too soon to say if these trends will continue into Q2.

"Managers and lenders must be cognisant that some groups remain under pressure and will likely require support for some time.”

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