Mortgage matters: high interest rates and financial difficulty
Jane Tully explores the financial pressures facing homeowners and what we’re seeing at Business Debtline and National Debtline.
Posted May 10, 2024
This week the Bank of England announced its latest decision on interest rates, which sees rates held at their highest level for 16 years. Jane Tully explores the financial pressures facing homeowners and what we’re seeing at Business Debtline and National Debtline
At the end of April, I had the pleasure of speaking on a panel session at UK Finance’s Annual Mortgage Conference. The session considered the current outlook on mortgage arrears, and how lenders can encourage people in need of support to contact them, and what the new FCA rules on forbearance mean for mortgage holders and lenders alike.
Housing stories, whether they relate to private tenancies, social housing or mortgages are in the news a lot at the moment. Interest rate rises have had a big impact on housing costs for both mortgage holders and renters. And with about 1.5 million homeowners remortgaging this year, many more people face paying significantly higher costs under any new deals. I wanted to share some of what was discussed at the conference and what we’re seeing at both Business Debtline and National Debtline.
What we’re seeing
Trends in who is seeking advice, and the debts they have, can be an important indicator of the challenges households are facing financially.
So far, the proportion of people seeking our help who have mortgage arrears remains relatively low:
- In the first three months of this year, 4.2% of National Debtline clients had mortgage arrears (compared to 3.8% for the same period last year).
- At Business Debtline, 8.6% of clients who contacted us in the first quarter of 2024 were behind on their mortgage (compared to 7.1% in Q1 2023).
What’s more notable is the increase we’re starting to see in mortgage holders coming to us for debt advice generally.
- 15% of National Debtline clients in 2023 were mortgage holders, up from 12% in 2022. In the first quarter of this year, it’s risen further, with 17% of National Debtline clients being mortgage holders.
- In 2022, 32% of Business Debtline clients were mortgage holders, but this rose to 37% in 2023, and has increased further to 38% in the first quarter of 2024.
This arguably reflects the wider financial pressure on some homeowners, and the impact this is having on their finances. Given the importance of keeping a roof over your head, we know many people protect housing payments wherever possible, even if that means falling behind on other bills. So, looking solely at mortgage arrears levels only shows part of the picture.
We also know that there is often a lag in people presenting for advice: a third of callers wait or year or more before contacting us. Monitoring what we’re seeing in our and other debt advice charity data will therefore be key in the months and years ahead.
Ensuring early access to effective support
In this context, it’s been positive to see the FCA’s recent decision to make permanent stronger protections for consumers in financial difficulty, which were first introduced during Covid. These include widening the forbearance options available to customers, improving signposting and referrals to debt advice and setting expectations on lenders to be as proactive as possible in reaching out to people at risk of financial difficulty.
While repossessions remain low by historical standards, the latest data from the Ministry of Justice shows a rise in mortgage possession claims - 39% higher in the final quarter of 2023 than a year previously.
With everyone keen to ensure we don’t see a rise in people losing their homes, it’s vital we work together to ensure people get early and effective support to identify and prevent financial difficulty from worsening.
The introduction of the Mortgage Charter – covering around 90% of the mortgage market - was a positive step. The latest data shows that around 760,000 mortgage holders have taken out one or more of the options set out in the Charter, and 90,543 mortgage accounts have temporarily reduced monthly payments.
Helping mortgage holders access advice, even if they haven’t yet fallen behind on their repayments is also crucial in supporting good outcomes.
We know there can be many barriers to people seeking advice or speaking to their mortgage lender: people feel overwhelmed, scared and don’t always know that help is there.
As the FCA has highlighted, firms can help by promoting the benefits of debt advice, having clear referral routes in (including to specialist services such as Business Debtline) and promoting their own support offers to encourage people to get in touch.
Having a really clear, simple offer for support is important, too. During Covid we saw the impact this had on encouraging people to get in touch with their lender and discuss their situation. While the support context is different now (with no widespread payment deferrals on offer), we’d encourage lenders to think about how they can make their support offer as clear as possible (for example, making this prominent on websites and in communications) with plenty of good practice examples of this across the sector already, too.
If you’re a mortgage lender and would like to discuss more about how National Debtline and Business Debtline supports your customers, please get in touch.
Jane Tully is the Trust’s Acting Deputy Chief Executive and has served on the charity’s Senior Leadership Team since 2014. She leads our work on policy, communications, marketing and research. She previously worked for the Charity Finance Group, Charity Commission, NSPCC and local government. View all posts from Jane Tully.
