"The number of mortgage holders in arrears rose in Q2 as higher mortgage rates and the cost of living continued to weigh on households."
There were 81,900 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, 7% greater than in the previous quarter, the latest UK Finance statistics show.
Within this total, there were 30,940 homeowner mortgages in the lightest arrears band (representing between 2.5 and 5% of the outstanding balance) - a 12% increase on Q1.
There were 8,980 buy-to-let mortgages in arrears of 2.5% or more in Q2, 28% greater than in the previous quarter.
Within this, there were 4,810 buy-to-let mortgages in the lightest arrears band - a 41% rise on the previous quarter.
Mortgages in arrears accounted for 0.93% of all homeowner mortgages outstanding and 0.44% of all buy-to-let mortgages outstanding in Q2.
610 homeowner mortgaged properties were taken into possession in the quarter, 19% fewer than in Q1.
440 buy-to-let mortgaged properties were taken into possession Q2, 7% greater than in the previous quarter.
A UK Finance spokesperson said: “The number of mortgage holders in arrears rose in Q2 as higher mortgage rates and the cost of living continued to weigh on households. Although any rise in arrears can be worrying, overall numbers remain low with less than 1% of homeowners and less than half a per cent of landlords behind on their payments.
"Lenders have been preparing for any continuing increases in arrears, for example with the launch of the Mortgage Charter, and have already helped over 200,000 borrowers before they have got into financial difficulty by restructuring their repayments.
"The number of homeowner and buy-to-let possessions in Q2 remain close to historic lows but are expected to continue to rise in line with our mortgage market forecast given the ongoing cost of living challenges."
Joe Stallard, director and adviser at House and Holiday Home Mortgages, commented: "The struggles continue for landlords. In fact, it's downright brutal. Though the numbers are still relatively small, the rise in properties being taken into possession is a worrying sign, even if not entirely surprising given recent legislation changes that have come down hard on landlords. We mustn't forget the knock-on effect this has on tenants. Punishing landlords this harshly will reduce the amount of good quality rental property available, which will increase rents and competition for those that don't want to, or can't yet, buy."
Riz Malik, founder and director at R3 Mortgages, said: "It seems that an increasing number of buy-to-let landlords are encountering serious financial challenges. Beyond escalating borrowing expenses, unpaid rents stand as a significant factor. Moreover, when landlords aim to offload their properties, the timing couldn't be less favourable in recent memory. Even at auctions, properties remain unsold. Regrettably, the mortgage charter offers no assistance to these landlords, despite their essential role in supplying housing in the private rental market. The surge in arrears was bound to happen and the outlook for many landlords is bleak."
Lewis Shaw, owner and mortgage expert at Shaw Financial Services, added: "This is a sign of the times, and it'll continue to get worse throughout 2024 as more than 1.4 million households will face remortgaging at much higher rates than anyone has been used to for well over a decade. You can't jack up interest rates at the speed we've seen over the past 18 months and not cause households to sink below the waterline. Thankfully the Mortgage Charter will give some light relief for owner-occupiers, however the buy-to-let market seems to be dead in the water already."
