Nearly half a million mortgage holders are set to miss a payment in the next six months, new data shows.
Experts attribute the ongoing crisis of debt and default to the rapid rise in mortgage interest rates, driven by the Bank of England’s successive interest rate hikes since March 2022 and August 2023.
Data from Eligible, a platform used by banks to provide bespoke financial communication through AI, indicates that a further 670,000 mortgage holders have missed payments in the past 12 months.
This comes at a time when homeowner arrears have witnessed a demonstrable year-on-year increase of 25 percent to 93,680, according to data from UK Finance.
Zahra Hassan, co-founder of Eligible, said: “The fundamental problem is that mortgages are a financial product that customers take out only once every three to five years.
“This means that they aren’t regularly engaging with their mortgage and aren’t in the loop of what all their options are.”
Up to 5.4 million Britons have cited their mortgage as a significant cause of financial-related stress alongside a spiralling cost of living and energy bills.
Eligible highlights communication as a prominent factor contributing to the imminent mortgage-payment crisis, with their research indicating that 1.3 million do not understand the terms of their mortgage due to the absence of communication with their lender.
Ms Hassan said: “In a broader sense, rising interest rates, coupled with increased energy and living costs, heighten vulnerability to default.
“However, the key factor that pushes someone from financial strain to actual default is their lack of awareness about the array of options that their bank could have offered to temporarily ease their financial burden, particularly on their largest financial obligation – their mortgage.”
According to Eligible, the onus is increasingly shifting onto banks to provide tailored and proactive real-time communication with their customers, especially with the implementation of the FCA’s Consumer Duty on July 31, 2023.
Setting a new standard for consumer protection in financial services, Consumer Duty requires providers of financial services to provide ‘good outcomes’, primarily driven through proactive communication from the service provider.
Aiding the provision of good outcomes, Eligible highlights that developments in technology– such as machine learning programmes – can be utilised by financial institutions to identify at-risk customers and generate personalised support adapted to their unique situation.
Ms Hassan said: “What’s needed – and what we’re doing at Eligible – is an active two-way dialogue.”
More lenders have been raising interest rates on mortgages over the past two to three weeks in a move that some experts have described as “undermining the sentiment in the property market”.
Speaking to the Newspage news agency, Bob Singh, Founder at Chess Mortgages said: “Lenders raising rates has started to undermine sentiment in the property market. Prospective buyers are starting to batten down the hatches again.
“This trend looks set to continue until rates start to come down again. The market badly needs positive economic data to revive the confidence seen of late. The March Budget could provide the impetus the market needs to escape the roll call of bad economic news.”
Michelle Lawson, Director at Lawson Financial added: “The yo-yoing of mortgage rates is doing nobody any favours. January saw joy, February fluctuations and based on the current trajectory, madness will define the mortgage market in March.
“The public don’t know whether they are coming or going. As brokers, the only thing we can say is do what is right for you for now. If your mortgage is due in the next six to eight months then start thinking now and get a good broker on board who can secure a rate now before they rise further and change the product if rates come down again before completion.
“The mortgage market has gone from the sublime to the ridiculous in seven weeks.”
