Pepper Advantage Reports 2.4% Rise in Residential Mortgage Arrears in Q4 2024 Amid Ongoing Financial Strains
Pepper Advantage, a global leader in credit intelligence, has released its latest quarterly data, revealing that residential mortgage arrears in the UK experienced a 2.4% increase in Q4 2024 compared to the previous quarter, following two consecutive quarters of decline. This uptick highlights the ongoing financial pressures faced by UK households, underscoring the challenges borrowers are encountering due to higher borrowing costs and inflationary concerns.
The comprehensive data from Pepper Advantage, which consolidates and analyzes mortgage performance from over 100,000 UK residential mortgages, paints a detailed picture of the market’s current state. The increase in arrears spans across multiple product areas, including both fixed-rate and variable-rate residential mortgages, as well as buy-to-let (BTL) mortgages. While some markets showed a slight slowdown in arrears growth, overall trends indicate that more households are struggling to keep up with repayments, particularly as the cost of borrowing continues to rise.
Key Insights from the Data
Several key trends and findings emerged from the data:
- Buy-to-Let Market: The Buy-to-Let (BTL) mortgage market experienced a notable slowdown in arrears growth during Q4, dropping from 9.7% in Q3 to 1.5%. Despite this deceleration, arrears in the BTL sector have grown by a significant 38.1% compared to Q4 2023, reflecting mounting financial pressures in the rental market.
- Fixed-Rate Mortgages: Arrears for fixed-rate mortgages grew by 8.4%, marking the highest increase since Q1 2024, when arrears had surged by 10.1%. This sharp rise highlights the strain on borrowers who have seen lower-cost fixed-rate deals come to an end and are now facing higher rates in the market.
- Variable-Rate Mortgages: The arrears rate for variable-rate mortgages also saw a significant increase, rising by 2.3%. This is the highest growth rate recorded in this category since Q1, when arrears increased by 3.9%. The growth in arrears for variable mortgages further emphasizes the ongoing financial pressures borrowers are facing due to rising interest rates.
- New Mortgage Originations: New mortgage originations experienced a 9.2% drop in Q4 compared to Q3 2024. This decline is indicative of a less active mortgage market during the holiday season. When compared to Q4 2023, new originations remained steady, suggesting a less dynamic mortgage environment overall.
- Regional Trends: On a regional basis, arrears rates increased across most of the UK, with the East Midlands, North East, and Scotland seeing the only declines. Arrears in these regions decreased by 1.8%, 2.4%, and 3.2%, respectively. In contrast, arrears rates in other regions grew by between 0.7% and 5.7%, indicating a broader national trend of rising financial difficulty among mortgage borrowers.
Analysis of Arrears Trends and Market Conditions
The increase in mortgage arrears, particularly after two consecutive quarters of decline, signals a shift in the financial landscape. The holiday season traditionally poses challenges for household finances, as families struggle to balance increased spending with ongoing bills and mortgage repayments. For many borrowers, the financial pressure was compounded in Q4 2024 by higher borrowing costs, particularly as many fixed-rate mortgages, which had previously provided a buffer, came to an end. As these fixed-rate deals expired, borrowers were forced to switch to higher rates, which strained household budgets further and led to an increase in arrears.
Fraser Gemmell, CEO of Pepper Advantage, commented on the challenging conditions faced by borrowers: “The three-month run-up to the holidays is often a challenging time for household finances as families balance higher spending with bills and mortgage repayments. For borrowers, these strains were accentuated in Q4 by unexpectedly higher borrowing costs, particularly as many cheaper fixed-term mortgages came to an end. These pressures have translated into a higher rate of arrears growth across the board.”
The Bigger Picture: Inflationary Pressures and Economic Uncertainty
While some regions have seen a reduction in arrears growth, the overall level of arrears remains high across various borrower types, age groups, and product areas. Increasing house sales in recent months, spurred by buyers looking to take advantage of expiring stamp duty holidays, have dominated headlines. However, this activity does not tell the full story of the UK housing market and broader economic conditions.
Inflation remains a key concern for many households, adding further strain to already stretched budgets. The rise in living costs, combined with higher borrowing costs, means that many borrowers are finding it increasingly difficult to meet their mortgage commitments. Although there are signs of arrears growth abating in certain regions, the general outlook suggests that these financial pressures are likely to persist for the foreseeable future.
“The overall level of arrears remains remarkably high across borrower types, age groups, and product areas,” Gemmell continued. “While arrears growth in some regions is abating, the overall economic conditions, including inflationary pressures, remain a key concern for many households. These pressures will likely persist for the foreseeable future, and supporting these households remains crucial.”
The Impact of Rising Borrowing Costs
One of the primary factors driving the rise in arrears is the increase in borrowing costs, which have been influenced by a number of economic factors, including central bank interest rate hikes. As borrowing costs rise, many homeowners who had previously benefited from lower-rate fixed mortgages have seen their monthly repayments increase significantly. This has resulted in more homeowners struggling to meet their obligations, particularly in the face of rising living costs.
The impact is particularly acute for borrowers on variable-rate mortgages, who have seen their rates increase as central banks tighten monetary policy. With inflation remaining high, many borrowers find themselves facing increased costs not only on their mortgages but also on everyday expenses, further exacerbating financial strain.
What This Means for the UK Housing Market
The rise in mortgage arrears, coupled with the broader economic challenges facing households, presents a difficult outlook for the UK housing market. While there have been spikes in housing sales activity, particularly due to the stamp duty deadline, this has not been enough to offset the broader issues facing the market. Many homeowners and renters are struggling to cope with the financial pressure of rising borrowing costs and living expenses.
In the coming months, the UK housing market may continue to experience significant challenges. As inflation remains a concern and borrowing costs stay elevated, the financial pressures on households are unlikely to ease quickly. For those with mortgages, these pressures could result in further arrears growth, especially if the trend of rising rates continues.
The Role of Financial Support and Guidance
In light of these challenges, it is increasingly important for borrowers to seek financial support and guidance to navigate the difficulties they may be facing. Lenders and mortgage providers will need to provide greater support to borrowers in arrears, offering solutions such as payment deferrals, refinancing options, or restructuring to help borrowers stay on track with their payments.
Fraser Gemmell highlighted the need for continued support: “Supporting these households remains crucial. As inflationary pressures and rising borrowing costs persist, borrowers need options and flexibility to help them manage their financial commitments. Providing this support will be essential to maintaining stability in the housing market and protecting the financial well-being of UK homeowners.”
