Mortgage arrears rise for fifth consecutive quarter in Q4 2023

The number of mortgages in arrears of 2.5 per cent or more of the outstanding balance reached 107,250 in December 2023, up 32 per cent on a year earlier, according to UK Finance's Household Finance Review for Q4 2023, published in March 2024¹. It was the fifth consecutive quarterly rise¹.

UK Finance, the trade body for the banking and finance industry, said the increase was expected and that arrears remain low by historic standards¹.

The review also reported 1,150 mortgage possessions in Q4 2023, a figure it said had barely changed across the whole of 2023¹. It expects Q1 2024 to show a smaller rise in arrears, but continued pressure on mortgage payments through 2024¹.

Other parts of the mortgage market were weak. First-time buyer numbers were down 22.4 per cent over the year and mover numbers down 26 per cent¹. Internal product transfers, where affordability tests are not required, were the only area of mortgage business growth, up 17.1 per cent¹. UK Finance said new mortgage rates remain much higher than in recent years and, with cost-of-living pressures, continue to present a significant barrier to affordability¹.

On household finances more broadly, the review said the total amount of personal deposits ended 2023 two per cent lower than a year earlier, as households drew down savings to meet higher expenses¹. It added there was as yet no sign of households using credit cards or other more expensive unsecured credit to finance higher outgoings¹.

The wider economic backdrop was weak. UK Finance cited Office for National Statistics estimates showing GDP fell 0.3 per cent in Q4 2023, a second consecutive quarterly contraction, with growth of 0.1 per cent across 2023 as a whole¹. Consumer price inflation stood at four per cent at the end of 2023, down from a peak of over 11 per cent, and held there in January 2024¹.

Why it matters for households

Arrears of 2.5 per cent or more of the outstanding balance are the threshold at which UK Finance counts a mortgage as in arrears in this data¹. The rise to 107,250 in December 2023 means more households were behind on payments at the end of last year than at any point in the previous five quarters¹. UK Finance expects pressure on mortgage payments to continue through 2024, though it expects the Q1 2024 increase to be smaller¹.

For anyone in this position, the consequences run beyond the missed payments themselves. Lenders can charge fees for mortgage arrears, and arrears are recorded on a credit file, which can affect borrowing for years. There are formal routes that can apply, including breathing space and a time order. Our guide on falling into arrears sets out the process, and extending a mortgage term is one option lenders may discuss.

The figures sit alongside a weak mortgage market: fewer first-time buyers and movers completed in 2023, while product transfers grew¹. For households already borrowing, the review's finding that deposits fell two per cent over the year indicates savings were being used to cover higher costs¹. The household borrowing figures give the wider picture of what UK households owe.

What happens next

UK Finance said it expects continued pressure on mortgage payments through 2024, with a lower increase in arrears in Q1 than in recent quarters¹. It also said possessions numbers are expected to remain low through 2024 and 2025, and that with the backlog of historic cases largely cleared, it expects a return to more normal timelines for the small number of arrears cases where possession is the only remaining option¹. Forward indicators suggest an uptick in lending in Q1 2024, though from a very low base, and UK Finance expects another challenging year for the mortgage market dominated by affordability constraints¹.