UK’S mortgage crunch is biggest in developed world

Share of homeowners missing more than three months of payments will double this year, says Fitch

MORTGAGED homeowners in the UK are more at risk of falling into arrears than in any other major developed country, a leading credit ratings agency has warned.

The share of homeowners missing more than three months of payments will double in 2023 to 1.5pc as high rates hit borrowers, according to Fitch Ratings.

Based on the current number of residential mortgages, this means 135,000 households will be in arrears.

Banks in the UK are more exposed to the housing market than in any of the 10 developed markets ranked by Fitch, which included Canada, the US, Germany, Australia and Italy.

Monsur Hussain, at Fitch, said: “The UK scores the worst in terms of borrower risks.”

Fitch has forecast that the Bank of England will raise the Bank Rate to a peak of 4.75pc, up from 4pc today, in May this year. Jessica Hinds, director of economics at Fitch, said: “We have seen much bigger increases in mortgage rates, the Bank of England started tightening much earlier, and we have shorter mortgage terms than in other countries.”

Crucially, British borrowers fix for short periods of two or five years, whereas buyers in the US commonly fix for about 25 years.

In the year to November 2022, average mortgage rates in the UK jumped by 4.5 percentage points, compared with 3.5 points in the US, Mr Hussain said.

The September mini-budget, which sparked a record jump in mortgage rates, brought unique pressure for British borrowers. Despite mortgage rates easing since, Foxtons warned that the fallout from the shock will continue to hit home sales through the majority of this year, even as buyer demand rebounds.

Guy Gittins, chief executive, said that although buyer demand bounced at the start of this year, the housing market is still paying for the damage to the sales pipeline from the autumn surge in mortgage rates.

He added: “There was an enormous drop in activity following the Budget.”

As it takes several months for property transactions to complete, the fall in inquiries during the last three months of 2022 will deal a blow to the pipeline through the first half of this year, even as buyers return, Mr Gittins said.

Viewing numbers have bounced in January and February, as declining mortgage rates and price reductions have brought increased interest, Mr Gittins said. He added: “That hasn’t translated into an increase in the sales pipeline, but we expect that very clearly to follow.”

Foxtons reported an 11pc jump in revenue in 2022 compared with a year earlier and a 56pc increase in its adjusted operating profit to £13.9m.

Mr Gittins, who took over as chief executive in September, plans to more than double the estate agent’s operating profits to £25m to £30m in the medium term. He said the company hopes to achieve this by focusing primarily on the lettings market, rather than sales. Early signs suggest the housing market is stabilising. Average house prices in the UK rose by 1.1pc month-on-month in February to £285,476, Halifax said.

Kim Kinnaird, of Halifax, said: “Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December.”

But the overall trend in the housing market is still downward, Ms Kinnaird said. The rate of annual growth slowed in all nations and regions during February.