FCA ‘less bleak’ about struggling mortgage borrowers

The financial regulator has revised its own data on how many mortgage borrowers may face repayment difficulties as it calls on lenders to be flexible.

New research by the Financial Conduct Authority (FCA), released this morning, suggest that addition to the households already behind on payments, 356,000 mortgage borrowers could face payment difficulties by the end of June 2024. 

This is down 214,000 from the 570,000 borrowers the FCA previously estimated in September last year.

The FCA said its previous analysis was based on market expectations as of 23 September 2022, which saw the bank rate peaking at around 5.5%, as opposed to a peak of around 4.5% now accounted for in the February estimates.

It will add to the debate about the health of the housing market and the environment that agents are working in when advising vendors and buyers.

The City watchdog has issued new guidance for lenders on how to help struggling borrowers, including extending the loan term, temporarily reducing repayments or switching from a repayment to interest-only product.

Commenting on the findings, investment platform AJ Bell said the data suggests more than 700 homeowners a day are still at risk of missing a mortgage payment and falling into arrears.

Its head of personal finance Laura Suter said: “The outlook for homeowners is bleak, but not as bleak as it was. On top of the people who have already missed a mortgage payment, the regulator thinks another 356,000 homeowners are at risk of falling behind by the end of June 2024. 

“But the good news is that this is a significant drop on the FCA’s previous expectations – the previous estimate expected 570,000 borrowers to hit financial problems by the end of June next year. 

“We have falling interest rate expectations to thank for that, as they are now expected to peak at 4.5% rather than 5.5%, meaning those coming to re-mortgage later this year won’t face such eye-watering increases in their repayments.”

Suter said there is no hiding from the fact that the mortgage market is a “terrifying place for the 1.4m homeowners coming off a cheap fixed-rate deal onto far higher rates this year.”

She added: “While average mortgage rates have dropped since the aftermath of the disastrous mini-Budget last year, they are still significantly higher than the rates many homeowners are on. 

“As these figures lay bare, for many homeowners the increase in costs will make their mortgage unaffordable, particularly in light of rising costs almost everywhere else in their spending.

“Younger people and those living in more expensive areas, such as London and the South East, are at the highest risk of struggling to make payments, because they often have a toxic combination of having borrowed up to the max and not having sufficient savings to help bail them out. 

“The unaffordable nature of getting on the property ladder in London means that many buyers have funnelled all of their money into buying a home, and have left nothing to fall back on.”

It comes as UK Finance data showed gross lending in the mortgage market grew by 1.9%.

The banking trade body said house purchase activity was weaker throughout 2022 compared with a bumper year in 2021, but this was offset by rising house prices and a strong refinancing market.

Following the September mini-Budget the flow of mortgage applications submitted to lenders fell sharply to levels considerably below those seen in the final quarter of 2021, UK Finance said.

Its latest Household Finance Review showed the number of house purchase loans from first-time buyers dropped 8.6% annually to 370,000 last year, and fell by 23.6% among home-movers to 339,000.

The number of buy-to-let mortgages also fell 15.6% to 813,006.

At the same time, affordability constraints meant that a greater number of households are borrowing over a longer mortgage term, with the average term for a first-time buyer loans now at around 31 years.

There were a little under 4,000 possessions over the whole of 2022, according to the report.

This is slightly up from the previous two years due to the industry’s voluntary pause on possessions, UK Finance said, but is still lower than any other year since 1980 when the overall stock of mortgages was a little over half the size it is today.

Eric Leenders, managing director of personal finance at UK Finance, said: “Despite the fall in applications towards the end of 2022 the mortgage market remains steady. 

“Looking ahead, we expect a softer market compared with the past two years as cost pressures weigh on households, although refinancing levels will be robust due to the 1.8m fixed rate deals scheduled to end this year.”