Millions face mortgage default if interest rates are hiked again

Rising rates could push more into the red: A quarter of homeowners won’t be able to afford their mortgage if rates rise again

• 26% of homeowners said they wouldn’t be able to afford their mortgage if rates go up again
• A further third (35%) said they were concerned their mortgage would be unaffordable when they next re-mortgage
• Moneyhub’s research comes before the Bank of England is predicted to further raise the base rate
• Open Finance powered Decisioning tools essential to preventing arrears and supporting struggling customers

 
Millions of homeowners could be at risk of defaulting on their mortgage if interest rates move upwards again according to new research from Moneyhub Decisioning, the data platform built on the principles of Open Finance to drive better affordability, eligibility, suitability and vulnerability checks.

Moneyhub’s research found that a quarter (26%) of homeowners with a mortgage said that a further interest rate rise would mean they won’t be able to afford their mortgage payments.

In addition, a third (35%) of homeowners with a mortgage said they were concerned that they will not be able to afford their mortgage when they re-mortgage due to rising rates.

It’s estimated that 1.4million people in the UK are set to re-mortgage in 2023 alone (Source:ONS), and with 1.5million estimated to be on standard variable rates (Source: Refinitiv)  and a further 85,000 with tracker mortgages (Source: UK Finance), it’s clear that a number could be in the red following a further rate rise.

Young people, who often have thin credit files or poor credit scores,  are particularly vulnerable to a further rate rise with close to half (44%) expressing concern about affording their mortgage if there were another rate increase. Londoners are also at risk. 51% of homeowners with a mortgage in the capital admitted they were concerned about affording repayments should rates rise.

This research comes following predictions the Bank of England’s Monetary Policy Committee (MPC) is set to raise the base rate again on Thursday (22nd June).

Recent research from UK Finance found that the number of households in mortgage arrears rose last quarter. With more set to struggle with repayments, it’s clear more needs to be done to support homeowners. However, all too often lenders won’t know a customer is at risk of default meaning support measures can’t be put into place. Open Finance powered Decisioning tools can help lenders better understand their customers and intervene early.

 
 
Suzanne Homewood, Managing Director, Decisioning at Moneyhub comments: “Times are challenging for homeowners. Mortgage rates continue to rise to levels not seen since before the financial crisis and other essential costs are eroding financial buffers, leading to a complex situation and increased risk for both consumers and lenders. It’s clear that there needs to be more support for those remortgaging or on tracker or variable rates who will be feeling the impact of rising monthly payments. With Moneyhub’s Open Finance powered Decisioning tools, lenders will be able to better understand their customers’ financial circumstances and offer products that are based on their current and historic spending patterns and behaviours, and therefore what they can actually afford.

“In addition, whilst providers stress-test a customer’s finances at the point of sale, they are not aware if/when a customer’s circumstances change and therefore if the product is still suitable. With the FCA’s new Consumer Duty regulations coming in next month, it’s vital that banks and lenders can prove products that are suitable for their customer across the life cycle of the product. Holistic, timely and relevant communication to those that could be falling into financial stress via Open Finance will support better outcomes, which has to be good for everyone”

Moneyhub Decisioning tools help firms better assess their applicants to ensure better financial wellbeing. Unlike traditional credit scoring, data-powered affordability checks can provide a real time view of an applicant’s financial information. This means lenders can lend with confidence, in addition to being Consumer Duty compliant.