UK mortgages in arrears soared to the highest level since the final quarter of 2023, fuelled in part by higher mortgage rates, the Bank of England said.

According to the data, the proportion of total loan balances with arrears, relative to outstanding mortgage balances, rose to 1.23% in the three months to 31 December, up from 1.12% in Q3 2023. per cent in the third quarter.

The figures marked a reversal of a long-term decline in overdue payments and the highest share since the final quarter of 2016, when it stood at 1.24%

Higher mortgage costs contributed to the trend in rising home loan arrears follows a sharp increase in mortgage costs over the past three years, as the BoE raised interest rates to a 16-year high of 5.25 per cent in a bid to tame inflation. Nevertheless, the share of mortgages in arrears remains well below a peak of 3.64 per cent in the first quarter of 2009 during the global financial crisis.

Karen Noye, mortgage expert at wealth management company Quilter, said: “The large increase in mortgage rates seen over the last couple of years is really starting to bite for some borrowers and this is unfortunately causing them to fall into arrears as they simply can’t afford to keep up with their increased payments.”

Simon Gammon, managing partner at Knight Frank Finance, added: “At 1.23%, the proportion of loan balances in arrears is still very low, but the pace at which it is rising will be a source of concern for policymakers.”

Home loan arrears are lower than during the 2008-09 financial crisis in part because of a resilient labour market and improved mortgage regulations.

In research published last month, the BoE said “the vast majority of borrowers” who came to the end of fixed deals in 2023 were offered rates below those they had been tested by when agreeing terms.

The BoE data on Tuesday also showed that the share of gross mortgage advances for buy-to-let purposes fell by 4.9% year-on-year in the final quarter to 7%, the lowest since 2010.

Noye said landlords had been “hit with numerous changes to the buy-to-let tax landscape in recent years, making it a less attractive option”, and that “the changes to the holiday let rules at the Budget may also make things even worse”.