Value of mortgages in arrears jumps – what to do if you're struggling

The value of outstanding mortgage balances in arrears has jumped to a seven-year high, according to a Bank of England (BoE) survey of lenders.

Outstanding mortgages where homeowners are struggling to meet payments were recorded as totaling £16.9bn in the three months to June, a sharp 28.8% annual rise compared with the same period a year before.

Rising borrowing costs, which have bee fuelled by 14 consecutive hikes to the BoE base rate, have seen millions of homeowners face higher mortgage bills.

Here, Which? delves into the latest data and offers advice on what to do if you're struggling with your repayments.

How has the value of mortgages in arrears changed?

The value of outstanding mortgages in arrears (defined as failing to make payments equivalent to at least 1.5% of the outstanding mortgage balance or where the property is in possession) was £16.9bn in the second quarter of this year.

That's a rise of 13% compared with the quarter before (£14.9bn) and a jump of 28.8% compared with the same period a year before (£13.1bn) – the highest figure since the third quarter of 2016.

However, the BoE says that new arrears cases equated to 16% of the total outstanding balances in the latest data, which was little changed compared with the previous quarter. 

We're also still a long way from the peak of £43.6bn in the first quarter of 2009 when mortgages with arrears spiraled after the financial crash. 

The graph shows how today's value of mortgages in arrears compares against the past 15 years.

The proportion of total loan balances with arrears also increased over the quarter from 0.89% to 1.02%, the highest share since the first quarter of 2018.However, it's still far off the peak of 3.64% in the first quarter of 2009.  

• Find out more: best mortgage rates for home moves and first-time buyers

Will the situation improve for homeowners?

Which? research shows that 79% of mortgage borrowers are worried about housing bill costs. That's the highest we've recorded since we launched our Consumer Insight tracker in 2013.

The BoE is expected to increase the base rate again next Thursday, potentially taking it to 5.5% as it continues to try and ease inflation. Such a move makes it more expensive to borrow, so will likely stall or reverse the very slow retreat in mortgage rates we are currently seeing. The average two-year fix is currently 6.64%,and a five-year fix is 6.14%.

The number of homeowners in arrears is also expected to rise as a big swathe of households come off two and five-year fixes to higher rates. More than 500,000 fixed terms will be coming to an end between November and January, figures from regulator the Financial Conduct Authority (FCA) show. 

Some experts believe salary growth could help homeowners foot their higher mortgage bills and prevent more people from falling into arrears. Data from the Office for National Statistics (ONS) shows that wages grew at the fastest pace on record (+7.8% excluding bonuses) in the three months to July 2023. Average wages are now growing faster than inflation, which has measured 6.8% in the year to July. 

Howver, not everyone can afford to keep up with their rising mortgage costs. Last month, Lloyds Banking Group estimated that customers fixing over the rest of the year could face repayment rises of £360 per month, or £4,320 annually.

• Find out more: use our mortgage repayment calculator to check how your bill could change and read what to do if you need to remortgage for our tips if your deal is about to run out.

What to do if you're struggling to pay your mortgage

If you think you won't be able to make your mortgage payment, the first thing to do is contact your lender. It's crucial to make them aware that you're struggling, so don't feel embarrassed to ask for help.

You may be able to take a temporary payment holiday, temporarily switch to interest-only payments or extend the term of your mortgage (ie from 25 years to 30 years) to reduce your monthly payments.

Remember, though, that any options you take for temporary 'breathing space' will see you pay back more in the long run as the interest bill will continue to build up. So, make sure you factor this in if you're thinking of requesting a payment holiday or term extension.

The vast majority of lenders have signed a mortgage charter pledging to offer these support options with no new affordability checks and protecting credit ratings if you meet certain criteria. However, if you continue to take the relief after the six-month period, your credit file could then be impacted.

Lenders that have signed up to the charter have also agreed to offer more flexibility to those falling behind on their repayments by agreeing to a 12-month delay before taking repossession proceedings.

• Find out more: what to do if you can't pay your mortgage. Our guide outlines what you could opt for if you're finding it hard to meet your monthly bill.