As the FT has noted this morning, the number of mortgages in arrears has reached a seven-year high.
And it has not just crept up, it has leapt up:
That rate of change is both quite extraordinary and wholly predictable.
It is also completely predictable that the rate of arrears will rise very considerably over the next year as more of the mortgage payers who have already suffered massive increases in their rates give up the uneven struggle to maintain their payments. They will also be joined by maybe 1.6 million more households in the next year that will have to renew their mortgages at rates vastly higher than they have been paying to date. The current average offer is well over 6 per cent.
I accept that, at present, accounts in mortgage arrears only represent around 1 per cent of total mortgage accounts.
I suspect that will get very much worse and that the rate of repossessions might rise considerably.
Despite this, the Bank of England will be looking at raising interest rates again soon and has already made clear that the chance that they will bring them down much for a very long time to come is very low.
We are heading for a crisis of the Bank of England's making - the scale of which appears to be beyond their comprehension, and beyond that of most of those commenting on inflation.
Could that be because they are nowhere near suffering from this mortgage problem?
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Not banking and not British, but perhaps this has some resonance. This is Tim Gurner speaking during the 2023 Australian Financial Review Property Summit. I hadn’t thought your warning were “understated” before, but now…
https://metapixl.com/p/raymondpert/607412816806049472
The recent rise is extraordinary, however it’s a number and not a rate. Moreover allowing for inflation the published number today is slightly less than in 2019.
The real way to tell if we’re heading into a crisis here is to look at the mortgage possession statistics.
No, it is to look at the rate of change
I do prefer a graph where the ‘y’ axis starts at zero. The situation is serious, but not exponential.
I am inclined to believe that the source of this problem is the very low interest rates we experienced (by historic standards) in recent times. That drove the amount that people spent on property and inflated property prices to the ridiculous levels they are at now, but when interest rates start to increase problems come with it.
Of course if PPR (Principal Private Residence) relief was scrapped and people with huge gains on property values were taxed at disposal it would reduce the amount they could spend on their “next” property which might help deal with property price inflation, and of course that in turn would result in lower property prices. Not really a solution for people with a problem now, but an interesting thought all the same.
It feels like both low interest rates and the lack of tax on property gains contributed to the current problems as much as the Bank of England’s current policy is now exacerbating them.
I disagree
The probloem was the excessive crddit was allowed
That is quite different
This a complete and utter failure of markets.
The Government should/could interfere here and bring the BoE under control, as much as it could intervene in other markets that affect prices (such as fertilizer which is affecting food prices, and other key commodities).
But apparently this is all normal and accepted and it seems that people will tolerate it.
It’s not just those with mortgages facing an arrears crisis but also renters….
UKALA conducted a survey of Letting Agents in late November and early December 2022, in order to forecast what the Private Rented Sector might look like in 2023.
The results warn of a tough year ahead for the industry. It seems to reflect that the increasing burden on landlords amid the current financial crisis, means that there will be an impact on the availability of rental stock in the private sector.
Rising Rent Prices in 2023
Agents have given valuable insight into the rising rent prices that tenants can expect this upcoming year. Only a mere 17% of the agents asked in the survey reported no change in their rent price forecasts, and virtually none saw an outcome in which rents would fall in any region. The rest stated;
“79% of member letting agents see rents rising in 2023, 58% by up to 10% and 21% by over 10%”
– UKALA
These figures are worrying, since we already know that around 2.5 million renters are either behind or struggling to pay their rent already.
Predictions for the Private Rented Sector See an Increase in Arrears
Its long been speculated that the cost-of-living crisis would have an impact on the number of tenants facing rent arrears in 2023. However, the results of the survey put this in stark reality as they show that;
“nearly 68% of respondents see rent arrears increasing next year (of which 8.5% are forecasting them to more than double)”
– UKALA
Letting agents in Greater London, South East England and the South West particularly, expect to see rent arrears increase significantly due to the soaring rent prices.
The old rule-of-thumb used to be that a landlord should be able to have three months rent saved, to fall back on in the event that a tenant falls into arrears.
However, court times to gain possession of a property where a tenant has fallen into arrears, is now significantly exceeding three months. Currently, it stands at around 10-14 months.
With the rising average monthly rent and the severe delay in court proceedings, the average cost to evict a tenant in arrears is standing at £16,945.
If we were to update the ‘rule-of-thumb’ to fit the current financial crisis, a landlord would need at least £14,880 in the bank – for each property they let.
Having access to that kind of cash upfront is simply not feasible for most landlords.
https://lettingshub.co.uk/letting-agents/blog/rising-rent-tenants-in-arrears-and-landlords-reducing-portfolios-in-2023-what-can-you-do-as-an-agent/
Thanks
Interestingly enough the Bow Group, a right wing Tory Pressure Group proposed that the Government should set targets for average house prices of 4x average earnings.
My ‘news feed’ on my phone seems to have picked up Landlord Today & various other BTL websites but while the situation isnt that clever with Owner Occupied mortgages the situation with BTL mortgages is equally serious.
Certainly there are quite a few BTL landlords with large portfolio’s that are ‘highly geared’ ie not worth very much if at all and the owners dont have enough income from elsewhere to meet higher interest rates, neither do tenants have the income to meet any proposed rent increases.
Interesting times indeed
I am quite confused about the housing market.
Let’s assume 3 things, that seem likely:
Mortgage arrears leading to house repossession
Rent arrears leading to house repossession
BTL landlords unable to meet their commitments and trying to sell their properties.
While all those things lead to nightmare scenarios for the people made homelesss, they also release large numbers of properties onto the market. Those properties need occupants. So the overall homelessness figures remain the same?
No
The number of vacant properties could rise as credit is squeezed.