Mortgage rates: Banks warn of more ‘financial difficulty’ – but arrears increase will be small
Leading bankers have said that an increasing number of customers will face financial difficulties as mortgage rates rise, but remained confident that both consumers and lenders could withstand the pressure.
Bradley Fordham, mortgage director at Santander, said that with rates at six per cent, the average increase in monthly payments for customers coming off a deal at 2.3 per cent would be around £350 per month.
“That is significantly more. In this environment you would expect more customers to have some financial difficulty,” Fordham told MPs today.
As a result of the increase in mortgage costs, many of the lenders said they would likely see a small rise in arrears, but they repeatedly stressed that it was unlikely to be too severe.
“We will see more and more customers with more financial stress, but I expect that to be relative to the market. And there are options available to those customers that are experiencing financial difficulties,” Charlotte Harrison, interim chief executive home financing at Skipton Building Society, said.
All the lenders pointed out that they stress-tested customers at higher rates to ensure that they could withstand rising rates. Many also pointed out that so far they had seen little increase in arrears.
Henry Jordan, Nationwide’s home commercial director, who was also speaking in parliament, said there had not yet been any “material movement in our arrears performance”. He said customers were taking action, with the building society seeing an increase in overpayments and term extensions.
Harrison at Skipton Building Society said that although arrears had risen very slightly at the beginning of the year, this reflected “seasonality”.
“We saw a small uplift but that trend has come back down,” she said.
According to UK Finance, arrears picked up two per cent in the first quarter but remain well below pre-pandemic levels.
Lloyds’ home director, Andrew Asaam, pointed out that “historically mortgage arrears have been highly correlated with unemployment,” which so far has remained relatively low.
As mortgage rates spiralled and concerns were raised around the impact on consumers, lenders were being cajoled into signing up to the Mortgage Charter at the end of last month.
The panellists highlighted that all of the measures included in the Mortgage Charter were available already, the difference was they were now available without affordability checks or impact of credit ratings.
“It provides consumers with clarity around what’s out there and consistency,” Assam said.
Commenting at the end of the hearing, chair Harriet Baldwin noted that the lenders sound “quite calm about the quality of your mortgage book” and were not seeing a “spike in arrears”.