More than 750,000 UK homeowners are at risk of defaulting on their mortgage payments in the next two years, the Financial Conduct Authority has warned.
In a letter sent to the Treasury Select Committee on 14 December, the City watchdog said 200,000 mortgage-holders had fallen behind on their home loans by June 2022 and estimated a further 570,000 borrowers are at risk of being unable to meet their mortgage payments between now and the end of 2024, amid rising costs.
A household is at risk of a shortfall if their mortgage payments make up more than 30% of their monthly household budget with the forecast based on the assumption that households will face a 10% dip in their incomes during the next two years as wages fail to keep pace with inflation.
Soaring food, fuel and energy costs have already put pressure on household finances, with inflation now more than double where it was last year which has put pressure on central banks to increase interest rates.
1.4mln households face higher mortgage bills
The botched mini-budget has added to the misery, sending mortgage rates soaring, as fears about the state of the UK’s finances exacerbated.
Last week, the Office for National Statistics (ONS) said that 1.4mln households face higher interest payments next year as their fixed-rate mortgages expire and warned about 800,000 households could see their mortgage rates double.
Around 57% of mortgages coming up for renewal this year were fixed at interest rates below 2% while the average two-year fixed-rate mortgage is now 5.79% after peaking at 6.65% in October. Five-year fixes have also fallen to 5.63% after peaking at 6.51% in the same month.
Green shoots?
There are some signs of hope. Sharp falls in energy prices in recent weeks have boosted hopes that inflation may fall faster than previously forecast which should reduce the level of peak interest rates.
Also, some providers have started to bring new deals, at lower rates, to the market with NatWest and Coventry Building Society amongst those announcing cuts to mortgage rates this week.
NatWest said it will cut selected product rates across two and five-year terms, with reductions of up to 72 basis points for new business and 64bps for existing customers.
Coventry Building Society has lowered residential rates by up 0.9%, reintroduced its tracker products and brought out cashback remortgage deals.
While one housebuilder is trying to stimulate demand by offering customers mortgage incentives to get them to sign on the dotted line.
Persimmon PLC (LSE:PSN) has told customers who buy a new Persimmon home by 31 January 2023 that they will cover up to 10 months of new homeowners’ mortgage bills, freeing up customers’ cash to help with the cost of living.