I only wrote about the disastrous consequences of the 100% mortgage a short while ago, and my predictions are already materialising!
Various news outlets are reporting that broker searches are including second charges a lot more and that people are looking to borrow their way out of financial trouble. Other searches that dominated the charts included "1 year self-employed and there was a rise in searches for lenders who will accept people that are currently on a debt management plan. This as well as the number one search - ‘maximum LTV’ indicates that borrowers are actively reaching out to brokers to help them get their money worries on track by (perhaps counterintuitive to some) borrowing more. My gander is however that refinancing at a lower rate at the same time would lower monthly payments as well as free up some capital to afford themselves some breathing space.
What does this tell us?
The hangover from the sniffle that was the pandemic is now seriously kicking in. Those that took out a nice (sub 2%) fixed term loan in 2018 or 2019 will see payments sky rocketing to 6% or thereabouts! A worrying sign for sure because together with inflation having run wild for the past few years of tomfoolery on the political/economic front I can't see a lot of borrowers will have been swimming in newly found wealth - perhaps just a Porsche they purchased from the bounceback loans).
Here are the top five searches performed by brokers on Knowledge Bank during May 2023:
Impact
A recent report by Pepper Advantage, a global credit intelligence company, highlights a concerning trend in the UK residential mortgage market. Pepper Advantage (With over $60 billion in assets under management) has identified an 11 percent increase in borrower arrears in the year leading up to April 2023. This surge in arrears, which predates the recent base rate rises, is the highest growth rate since the global financial crisis over a decade ago. What impact does that have on the South London Property Market?
Growing Mortgage Arrears
The data indicates a strong correlation between rising borrower arrears and repayment collection failures, known as Direct Debit Rejections (DDRs). DDRs occur when there are insufficient funds in a borrower's account to cover a direct debit instruction processed by a creditor. Historically, DDRs have been a reliable leading indicator of borrower stress.The year leading up to April 2023 witnessed a significant increase of 33 percent in the percentage of accounts with a DDR across its UK mortgage portfolio. This rise in DDRs suggests that more borrowers are experiencing financial difficulties, which may eventually lead to arrears.
Regional Variations and Impact on South London:
Pepper Advantage's data also reveals interesting regional variations in mortgage arrears rates. While the arrears rate in London was around five percent in April 2023, the North East and North West regions of the UK experienced significantly higher rates, approximately 10 percent each. This emerging north-south divide indicates that South London might be relatively insulated from the brunt of the arrears issue. However, it is crucial to monitor the situation closely, as economic challenges and financial stress can have ripple effects. Potential factors such as job market fluctuations, changes in interest rates, and local economic conditions could still influence the property market in South London.
Different mortgages, different strokes
Pepper Advantage's report highlights variations in arrears rates based on mortgage types. Fixed rate mortgages experienced a 35.7 percent increase in arrears, while variable rate mortgages saw a slightly lower but still significant rise of 25.1 percent. Although the growth in variable rate arrears was recorded off a higher base, it indicates potential vulnerability among borrowers with adjustable interest rates.
The South London property market could experience some impact from these variations. Landlords with properties tied to variable rate mortgages might face increased risks as a result of borrower arrears. On the other hand, those with fixed rate mortgages may have more stability, but the overall market sentiment could be affected if the arrears situation worsens.
I know from data that the rental market is shrinking by 66 properties every single day at the moment as landlords struggle to make sense of the myriad of complexities (regulations) and see no profit due to tax grabs. I do wonder which investment is taking their fancy at the moment if property isn't? Perhaps a good time to be a South London landlord as demand is increasing as well as supply shrinking! Rental prices are on the rise, that is for sure.
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