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Could rising mortgage rates lead to an increase in repossessions?

Christina Hoghton
Written By:
Christina Hoghton

Some mortgage experts think that arrears and repossessions will rise, although lenders will always support borrowers where they can

Mortgage rates have risen rapidly over the last two weeks, following smaller but steady increases throughout 2022.

Some mortgage experts now fear that higher monthly repayments could lead to a rise in mortgage arrears (when borrowers fall behind on their monthly repayments) or, in the worst-case scenario, rising repossessions.

Rate rises

Average two- and five-year fixed rates now both top 6%, according to Moneyfacts. A year ago they were 2.25% and 2.55% respectively.

This means that many borrowers face a large increase in their mortgage repayments. This will have already happened if you are on a variable rate, including discounted rates, standard variable rates or tracker rates.

If you’re on a fixed rate deal, the increase in your payrate will be delayed until your current mortgage deal is up.

At that point you can either remortgage to a new mortgage deal, which will be priced significantly higher than what you’re currently paying, or do nothing and revert to your lender’s standard variable rate, which is also likely to be much higher than your current rate.

Clearly, some borrowers could struggle to meet the higher monthly repayments required, especially when you consider the wider cost of living crisis, particularly higher energy bills.

Some could end up missing mortgage payments and ultimately more homeowners could face repossession.

Lewis Shaw, founder at Shaw Financial Services said lenders are already ‘gearing up for a significant rise in repossessions, arrears and defaults over the next 24 months’.

He said: “The biggest worry is households on shorter-term fixed rates due to expire in the next 12 months, rolling off sub 1% mortgages that are set to jump up to somewhere around 6%. For an average-sized mortgage loan, this could be an increase of up to £600 per month. This could well be the straw that breaks the camel’s back.”

Imran Hussain, director at Harmony Financial Services, agreed that ‘repossessions and relutant sales will be likely’. He noted that some borrowers are “leveraged up to the hilt with so-called cheap money rolling off sub 2% interest rate deals and now looking at possibly 5% and 6% interest rates without any form of an increase in salaries over the past decade repossesions and reluctant sales will be likely”.

Lender support

Jonathan Burridge, founding adviser at We Are Money, was more optimistic that lenders would exercise forbearance and try to avoid repossessions. He said:”Mortgage lenders have been beefing up their customer support teams this year in anticipation of an increase in borrower financial difficulties. The regulators have already made their expectations clear that lenders need to be supportive of borrowers.

“Mortgage payment shock will hit many, but it is anticipated that whilst the number of loans in arrears may increase, the percentage of loans that face litigation will not rise as an overall percentage. It is in nobody’s interests to see forced sales and repossessions.”

Riz Malik, director at R3 Mortgages, agreed that lenders would work hard to avoid repossessions. He said: “Lenders will only force a sale as a last resort after exhausting all other options and that takes time.

“The current administration also knows that rising repossessions would be the final nail in their coffin ahead of the next General Election so you cannot rule out Government intervention.”

If you are worried that you will be unable to meet your monthly repayments, contact your lender as soon as possible. They will be ready and willing to help, and will discuss your options with you.