As the cost of living crisis continues to deepen, new research has revealed that mortgage lenders are bracing themselves for an increase in the number of borrowers defaulting on their loans in the first quarter of 2023.

The Bank of England survey also showed that the number of those defaulting on unsecured loans and credit cards climbed in the final three months of 2022, with the expectation now being that this trend will continue as the year progresses, the Guardian reports (1).

In addition, the most recent mortgage data shows that house purchase activity is on the decline, with the number of mortgage approvals dropping to 46,100 in November, the lowest level of sales since January 2011 (not taking into account the fall to 40,500 seen in June 2020 during the first pandemic-related lockdown).

The central bank also confirmed that the number of mortgages would likely decline in the first three months of 2023, as would the number of unsecured credit loans on offer, limiting access to consumer credit like short-term loans and credit cards that could help households make ends meet.

Anti-poverty campaigners have observed that climbing mortgage interest rates and high levels of inflation now mean that many low and middle-income households are likely to struggle to repay their loans. 

What to do if you can’t pay your mortgage

If you are worried that you’ll be unable to make mortgage repayments at the moment because of the cost of living crisis, there are steps you can take to protect yourself and avoid losing your home.

It can be beneficial to seek independent financial advice before you make any decisions about your mortgage so you can make sure you’re following the most appropriate course of action for your particular circumstances.

A good first step to take is to work out how much you can afford to pay so you have something to take to your lender. It’s important that you get in touch with them as soon as you realise you’re having financial difficulties so you can avoid falling into mortgage arrears and so you can agree to some sort of repayment plan.

Lenders are obliged to treat you fairly and give consideration to any request you may regarding changes to how you pay your mortgage. 

They may offer to give you a break from paying, reduce the amount you pay for an agreed-upon period of time, allow you to make repayments over a longer period or allow you to repay what you owe at a later date (known as capitalising the arrears).

Other potential avenues of support include changing to interest-only payments, reducing lower interest rates if you have equity in your home or switching to a cheaper fixed-rate mortgage.

If you are struggling with debt at the moment because of cost of living challenges, get in touch with us today for the appropriate debt advice.

References:

1. https://www.theguardian.com/money/2023/jan/19/uk-lenders-fear-spike-in-mortgage-defaults-as-cost-of-living-hits-home