The number of homeowner mortgages in arrears of 2.5% or more of the outstanding balance increased by 7% between the third and fourth quarters of 2023, UK Finance has revealed.

This figure, now standing at 93,680, is a 25% increase year-on-year.

The banking trade body’s arrears and possessions data revealed that of this figure, there were 35,940 homeowner mortgages in the lightest arrears band, which also increased 5% quarter-on-quarter.

Despite this increase, the number of homeowner mortgaged properties that were taken into possession in Q4 dropped by 14% to 540, also falling by 5% year-on-year.

Director of personal finance at AJ Bell, Laura Suter, commented: "On the plus side, repossessions remain low. Making year-on-year comparisons is tricky because repossessions were halted during the pandemic, skewing the figures. But they remain far below the financial crash highs. However, the figures don’t tell the full story. As part of the Mortgage Charter agreed between the Government and major lenders, there is pledge that homes won’t be repossessed in 12 months. It means we could see a boom in repossessions once that 12 month stay of execution has expired.

"Despite mortgage rates falling so far this year, it’s clear these arrears figures will keep rising. While a drop in mortgage rates is welcome, anyone coming to the end of a two or five-year fixed rate deal will find they are facing far higher costs – which understandably will be unaffordable for many."

The number of buy-to-let (BTL) mortgages in arrears of 2.5% or more of the outstanding balance increased to 6,800 in the fourth quarter, a jump of 18% compared to Q3 and also a 124% year-on-year increase.

Furthermore, UK Finance also revealed that the number of BTL mortgaged properties repossessed in Q4 increased by 11% to 500, jumping by 56% between 2022 and 2023.

Group partnership director at Movera, Mark Tosetti, said: "Unfortunately these figures show that mortgage arears figures continued to climb over the last quarter, particularly for BTL properties. Landlords are having a particularly tough time.

"Hopefully, over the current quarter, arrears and possessions levels will improve as confidence returns to the market as we seek positive indicators of interest rates looking to decrease in 2024. But we mustn’t forget that there are still many UK households who are yet to come off historically low fixed rates and onto higher rates. As an industry we need to work hard to support lenders and borrowers."

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