Mortgage recovery hinges on a Bank of England interest rate cut
Homeowners across the UK are catching a break as mortgage arrears fell for the first time since the cost-of-living crisis began – but a full recovery will hinge on the Bank of England’s decision on Thursday.
Missed mortgage payments in the second quarter fell by 4.4 per cent across the UK, whilst direct debit rejections were down 5.1 per cent. This marked the firm quarter since the pandemic where both areas have declined.
London had the smallest dip in arrears at just 0.9 per cent – making it the only region having a fall less than one per cent.
The North West led the pack with a 7.9 per cent reduction, whilst Wales was second at 7.7 per cent.
Fresh loans tumbled 3.2 per cent, as the report pointed to the Stamp Duty deadline on 31 March – where new originations peaked.
Chancellor Rachel Reeves changed zero rate thresholds for main residences, which dropped from £250k to £125k with first-time homebuyer thresholds dropping from £425k to £300k leading to a spike in loans as Brits rushed to avoid the lower tax rate.
The figures, revealed in a fresh report by credit manager Pepper Advantage, come ahead of a crucial interest rate cut decision from the Bank of England on Thursday.
Interest rate cut amid ‘fragile’ recovery
Economists anticipate the Bank’s Monetary Policy Committee (MPC) will cut rates by 25 basis points in what is expected to be a split decision.
The National Institute of Economic and Social Research (NIESR) projected one more cut, following an August reduction, in 2025. The group also predicted a rate cut in early 2026, ahead of projections previously pencilled in.
Aaron Milburn, UK managing director at Pepper Advantage, said the drop in mortgage arrears was a “promising sign that some household financial pressures may be easing after years of inflation and rising living costs”.
But he warned: “It is important to remember that any recovery remains fragile”.
Pepper Advantage’s report said the drop in arrears reflected a benefit in household budgets from less inflationary pressures and lower interest rates.
The MPC have slashed rates four times in the last year after they reached a post-financial crisis high of 5.25 per cent in August 2023 and were held at the level for near 12 months.
Harriet Guevara, chief savings officer at Nottingham Building Society, said any further reductions in the base rate would signal a “gradual easing in the cost of borrowing”.
“While we’re unlikely to see an immediate change in mortgage pricing, those coming to the end of fixed deals later this year may find better options opening up,” she added.