Homeowner struggles increasingly evident

It’s no secret that a significant number of homeowners are currently feeling an increased level of financial strain, and this is increasingly apparent in the market data we are seeing.

Recent statistics from UK Finance revealed an increase in arrears during the second quarter of 2023. Although this development isn’t unexpected, it’s a reminder of the challenges that a number of homeowners are currently facing.

According to the trade body’s figures, there were 81,900 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in Q2 2023, signifying a 7% increase compared to the previous quarter.

Among this total, 30,940 homeowner mortgages fell within the lightest arrears band, encompassing arrears ranging from 2.5% to 5% of a borrower's outstanding mortgage balance - a 12% increase on the last quarter and up 23% year-on-year.

Some 14,070 homeowners had arrears between 5- 7.5% of the outstanding balance, 8,200 between 7.5-10% and 28,690 over 10%.

This unfortunately seems a trend that is unlikely to abate, as household financial pressures continue to grow, underscored by recent research conducted by the Citizens Advice.

It recently revealed that in 2019, mortgage holders who received budgeting advice from Citizens Advice were left with a surplus of £61 after covering essential expenses. However, its latest figures reveal a sharp contrast, with those same mortgage holders now facing a monthly shortfall of £147.

Given these circumstances, we could see more borrowers resort to different types of credit to fill the gap.

The most recent Money and Credit data from the Bank of England corroborates this, showing consumer credit borrowing rose to £1.7bn in June - the highest net consumer credit borrowing since April 2018. While borrowing on credit cards remained stable at £0.6bn, borrowing through other forms of consumer credit - such as car dealership finance and personal loans - increased significantly from £0.5bn in May to £1.0bn in June.

While the annual growth rate for overall consumer credit remained unchanged in June, maintaining steady at 7.6%, the growth rate for credit card borrowing experienced a slight reduction from 12.5% to 12%. In contrast, other forms of consumer credit demonstrated a marginal increase in the annual growth rate, reaching 5.7% in June compared to the previous month's rate of 5.5%.

As consumer credit borrowing continues to rise, the likelihood of missed payments and credit blips is also expected to increase.

As some borrowers struggle to stay on top of their finances, it’s important advisers and clients know all of their options. While some borrowers’ circumstances might require a more targeted approach to their debt, for others, restructuring through a debt consolidation loan might be beneficial.

A second-charge debt consolidation loan could help homeowners utilise the equity in their property to consolidate multiple debts into a single manageable payment. This can potentially provide much-needed breathing room and alleviate the strain caused by mounting debt.

Additionally, a second-charge debt consolidation loan might offer more favourable terms compared to other credit options, making it a viable solution for those seeking to regain control over their financial situation.

In an environment where financial pressures are mounting and borrowing patterns are shifting, exploring alternatives like a second-charge products could offer a path towards greater stability and relief for homeowners facing the challenges of the current economic landscape.

The sooner an adviser can identify and assist borrowers who might be contending with unmanageable debt, the better. This can set them on the right course in the early stages, potentially preventing further debt escalation.