Londoners most at risk of being among the 350,000 UK borrowers who will struggle to repay their mortgage, regulator warns

An extra 356,000 mortgage borrowers could face payment difficulties by the end of June 2024, in addition to those who are already behind, according to the City regulator.

This has been reduced from a previous estimate made last September that an additional 570,000 mortgage borrowers could become financially stretched by the end of June 2024, the Financial Conduct Authority (FCA) said.

The FCA defined mortgage borrowers as being financially stretched if more than 30 per cent of their gross household income was going towards mortgage payments and they were not currently in a payment shortfall.

The estimate has been revised downwards due to changes in market expectations of the Bank of England base rate.

The previous analysis was based on market expectations in September 2022, which saw the bank rate peaking at around 5.5 per cent, as opposed to a peak of around 4.5 per cent in the February expectations, used to calculate the most recent estimate.

Among this group, those rolling off a fixed-rate deal could end up paying an additional £340 a month on average, according to the regulator.

Around 200,000 mortgage borrowers were in payment shortfall as of June 2022.

The FCA released the latest estimate as it confirmed finalised guidance, setting out the ways that mortgage lenders can help customers worried about or already struggling with their mortgage payments because of the rising cost of living.

The regulator expects firms to support people in financial difficulty.

The guidance covers options such as extending the term of their mortgage or making reduced monthly payments for a temporary period.

Making changes, even temporary ones, may result in higher monthly payments in future or paying back more overall. Mortgage borrowers should consider carefully any steps they take and customers who can keep up with their payments should continue to do so, the FCA said.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows most people are keeping up with mortgage repayments, but some may face difficulties.

“If you’re struggling to pay your mortgage, or are worried you might, you don’t need to manage alone.

“Your lender has a range of tools available to help. Get in touch as soon as you have concerns, don’t wait until you’re about to miss a payment before doing so. Just talking to them about your options won’t affect your credit rating.”

The FCA’s research indicated that borrowers aged 18 to 34 are more likely to be financially stretched than the rest of the working age population.

Those living in London and the South East, where house prices are often higher than the UK average, are also particularly likely to be stretched.

Being stretched does not necessarily mean borrowers will miss payments as some will be able to use savings, reduce spending or increase incomes to help meet their mortgage commitments.

As well as contacting their lender for support, worried borrowers can also visit MoneyHelper for money tips, budgeting tools and to find free debt help.

The FCA, major lenders and consumer representatives attended a mortgage summit in December.

Since then, the FCA said it has continued to work with lenders to help borrowers get the support they need, including timely communication.

Lenders have proactively contacted customers a combined total of 16.5 million times, across a range of channels, to offer support in the past year, the regulator said.

They expect this to increase this to 20.5 million contacts over the next year.

Lenders supported more than two million customers to manage their finances in the past year, including through budgeting tools, access to debt advice, and tailored mortgage forbearance.

The FCA said it will continue to monitor the mortgage market and how firms are supporting their customers.

Mortgages: Londoners face ‘toxic’ combination

Laura Suter, head of personal finance at AJ Bell, said the outlook for homeowners is bleak, but not as bleak as it was.

She said: “But the good news is that this is a significant drop on the FCA’s previous expectations – the previous estimate expected 570,000 borrowers to hit financial problems by the end of June next year.

“We have falling interest rate expectations to thank for that, as they are now expected to peak at 4.5% rather than 5.5 per cent, meaning those coming to re-mortgage later this year won’t face such eye-watering increases in their repayments.

“There is no hiding from the fact that the mortgage market is a terrifying place for the 1.4 million homeowners coming off a cheap fixed-rate deal onto far higher rates this year.

“While average mortgage rates have dropped since the aftermath of the disastrous mini-Budget last year, they are still significantly higher than the rates many homeowners are on. As these figures lay bare, for many homeowners the increase in costs will make their mortgage unaffordable, particularly in light of rising costs almost everywhere else in their spending.

“Younger people and those living in more expensive areas, such as London and the south-east, are at the highest risk of struggling to make payments, because they often have a toxic combination of having borrowed up to the max and not having sufficient savings to help bail them out.

“The unaffordable nature of getting on the property ladder in London means that many buyers have funnelled all of their money into buying a home, and have left nothing to fall back on.

“Anyone struggling with repayments shouldn’t bury their head in the sand. Instead they should approach their lender to at least find out their options and weigh up which might work best for them. If they want an independent opinion they could speak to a charity like Citizens Advice to get more advice.”