More than 1,000 homes were taken into repossession in the first quarter of the year as owners struggled to keep up with mortgage repayments.
Data shows that 750 homeowner mortgaged properties were repossessed in the first part of 2023, which is a leap of 50 per cent on the previous quarter, according to UK Finance, the trades association for the banking industry.
And an additional 410 buy-to-let were taken into possession as well, bringing the total to 1,160.
Figures also show that growing numbers of homeowners behind on payments, with 76,630 in arrears of more than 2.5 per cent between January to March – a jump of 2 per cent.
The numbers show the extent that the higher cost of interest rates in recent months, plus the rising cost of living, is having an impact on households.
The Bank of England has risen interest rates 12 consecutive times in the past 18 months, leading to mortgage rates increasing, but economists have suggested that the majority of the extra cost to homeowners is still to be passed on, as many are on fixed rate deals that have not yet expired.
A repossession is a last resort after mortgage payments are missed, but experts have suggested that there are various ways borrowers could try and avoid falling into difficulty.
Review your rate
As mentioned, many will currently be unaffected by rate rises, as they are on fixed-term deals signed before mortgage rates began to increase.
For these customers, keeping their deal under close review and trying to lock in a good deal before their fix ends and they are shunted on to a more expensive standard variable rate (SVR) mortgage could be a good move, with most lender offers valid for up to 6 months.”
David Hollingworth, Associate Director at L&C Mortgages said, “Mortgage rates are higher than the historic lows that borrowers have been used to in recent years but have stabilised after the rapid increases in fixed rates after the mini budget.
“The recent base rate rise and potential for more to come has seen some fixed rates tick up again but borrowers can secure a rate well before their current deal is due to end”.
Extend your mortgage term or look at interest only
It is sometimes possible to extend the term of a repayment mortgage, and because you’re paying over a larger amount of years, the monthly repayment can go down.
Alternatively, you could look at switching to an interest-only product which requires the borrower to meet just the interest element of the payment each month.
Both these have downsides as well though. Mr Hollingworth said that with lengthening the mortgage term, the total interest payable over the life of the mortgage will rise considerably, whilst with interest-only, the capital balance won’t be repaid.
“Interest only could look attractive to reduce the monthly payment but it’s also important to have a repayment plan in place. Reducing payments comes at the expense of reducing the mortgage amount gradually over time and switching back to repayment could only get harder over time”, he said.
Look into payment holidays
Payment holidays give borrowers a break from making payments for a specific period of time, but the disadvantage here is that the interest continues to accrue and is added to the mortgage.
If you do want one, you will need to speak to your lender first.
Mr Hollingworth said: “Payment holidays could be a useful short term measure to cover a difficult time that should come to an end in the foreseeable future. For example, where a new job has been secured but not yet started, a payment holiday could help to avoid bigger problems in the interim.
“Remember that the interest will be added to the mortgage so there’s a longer term cost to a payment holiday and payments will be slightly higher when they resume.”
