Brokers reveal the main triggers behind arrears among UK homeowners
While mortgage arrears in the UK have seen a decline recently, a significant proportion of mortgage holders are still finding it difficult to keep up with their payments, with brokers pointing to over-indebtedness, life events, and a lack of financial buffers as the primary reasons behind missed mortgage payments.
Matthew Jackson (pictured top left), director of Mint Financial Services, highlighted the vulnerability of homeowners to income shocks. “Everyone’s lifestyle and home hinge on their ability to earn money, remove this due to poor health, an accident or redundancy and mortgage payments are missed – and a default on a mortgage payment is viewed very differently moving forward by lenders than a default on a store card or HP Agreement,” he said.
“This means the advice we give clients on budgeting, saving, and most importantly, protecting their income is vital in an economy with rising costs of living.”
Kylie-Ann Martin (pictured top centre), director at KAG Financial, pointed to the gradual build-up of debt as a key risk. “Most clients’ mortgages are affordable at the point of completion, what happens after that is usually the main factor in whether it remains that way,” she said.
“We see many clients that take out debts slowly, but that build up as time goes on to really damage their finances.”
Brokers are also seeing warning signs such as clients extending mortgage terms at each review, consolidating debts, and increasing use of buy-now-pay-later services. “The general warning signs are clients who look to extend the term at every remortgage review and extend the loan to consolidate debts – when we question how they have accrued it is clear that loans and credit card debt are being built up to just cover living costs,” Jackson said.
Martin added: “One thing we have definitely seen an increase in is a heavy Klarna usage, people buying goods before they have the money to pay for them. These services can cause issues when people have multiple accounts with them, as this is when missed payments happen due to forgetting or not having the funds to cover all of them.”
Paul Seed (pictured top right), adviser at 1st Call 4 Mortgages highlighted the impact of car finance and lack of awareness about switching mortgage products. “Over-reliance on credit cards and car finance which is leading to overstretching,” he pointed out. “I’m seeing credit report after report with the car finance being all up to date, but arrears creeping in on the mortgage!
“I’m also seeing a lot of people who have been struggling on the standard variable rate because they weren’t aware they could move back to a fixed product at a fraction of the monthly cost, in some cases to the point where the mortgage arrears make it difficult to do so.”
Brokers agree that regular reviews and early intervention are essential. Jackson explained: “We conduct reviews with first-time buyers after six months of ownership to check the budget planner we completed. Have they settled into home ownership, are the bills affordable, can we look to allocate more funds to savings.
“And then from here, we schedule yearly reviews – it simply should not be the case that, as a broker, we arrange a mortgage and then do not speak to a client for two, three or five years until the product expires.”
Martin, meanwhile, emphasised the importance of budgeting and reviewing bank statements. “Going through an up to date budget planner always helps – and really getting down to the nitty and gritty of the bank statements,” she said. “A lot of people never look at their bank statements, and with contactless payments, it’s easier than ever to forget about how much money you are spending.”
For those already struggling, brokers urge open communication with lenders and brokers. “Talk to the lender, talk to the broker, please talk to someone!” Seed stressed. “There is so much support available if you just talk. If you don’t, you won’t get help.”
Options for struggling homeowners include extending mortgage terms, switching to interest-only payments, or seeking payment holidays. However, brokers caution that these measures may have long-term consequences and should be considered carefully with professional advice.
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