According to UK Finance, 1.8 million mortgage holders in Britain will come to the end of their fixed-rate deals in 2023, as inflation and higher interest rates squeeze household budgets
Some of the UK’s biggest banks are prepared to put in place measures to help mortgage holders struggling to make payments.
The move comes after the UK’s major banks had talks with Chancellor Jeremy Hunt earlier this month to come up with a co-ordinated approach to deal with late payments and refinancing.
We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now, Hunt said at the time.
The so-called forbearance measures are aimed at allowing the major lenders more flexibility when it comes to finding re-financing options for their customers. The measures were used after the 2008 financial crisis to avoid an avalanche of home repossessions.
According to the banking industry body UK Finance, 1.8 million mortgage holders in Britain will come to the end of their fixed-rate deals in 2023, as inflation and higher interest rates squeeze household budgets.
Escalating cost-of-living pressures coupled with materially higher interest rates than when households took out their current mortgage mean many customers, particularly among lower-income households, will have materially less ‘wiggle room’ left over in their household budgets after refinancing. This affordability challenge means these customers may find their remortgaging options more limited on the open market, UK Finance said.
The forbearance measures enable the banks to sidestep the affordability challenge and offer their struggling customers financial lifelines in the shape of internal product transfers (PTs).
The widespread availability of internal product transfers, which are not subject to the same stringent affordability tests, will mean the majority of customers will be able to find a new deal, UK Finance added.
Repossession is often the last resort for mortgage lenders, given the associated costs and the time it takes. The average time it takes to repossess a house in the UK is about two years.
The UK’s main mortgaging banks, Barclays, HSBC, Lloyds and NatWest, are making provisions for an increase in bad and underperforming mortgage debts in their full-year results, which are due out in February.
But the number of people who will struggle to pay their mortgages next year is not expected to be anything like as high as it was during the 2008 financial crisis. Much of that is down to the fact that the rules on mortgage lending were tightened considerably after the crisis, when almost 400,000 home loans in the UK were in arrears.
We expect the vast majority of borrowers to still be able to keep up with their mortgage payments. The number of customers in arrears is forecast to rise from the 80,000 seen at the end of September 2022 to a little under 100,000 by the end of 2023, UK Finance said.