MD suggests there will be progress before too long
The mortgage industry could be feeling the benefit of interest rate cuts within a year, helping to reduce arrears and bring greater stability to the market, according to Pepper Advantage UK’s Aaron Milburn.
There’s ongoing speculation, of course, about when the Bank of England may cut the base rate. Milburn, who is Pepper Advantage’s recently-appointed managing director, believes that by mid-2025 the sector will be ‘on the right path’, and urges politicians to help communicate which options are available to borrowers should they face financial difficulties.
Pepper Advantage is the UK subsidiary of the global credit management business, employing 370 people and managing the equivalent of roughly $25bn in assets, largely through its residential mortgage business.
“I hope that in 12 months' time we will be starting to feel the benefits of lower rates,” Milburn (pictured) told Mortgage Introducer. “The time horizon for these cuts continues to be pushed out as inflation remains stickier than expected, but we are hopeful that come mid-2025 we should be on the right path. This should act as a slow pressure release for the industry, lifting financial stress from borrowers, reducing the rate of arrears and introducing a greater level of stability in the market.”
How can politicians support those in financial difficulty?
In Milburn’s view, governments hold a huge amount of power to communicate important messages to the public around financial issues.
“An important area in which politicians of all stripes can support the mortgage industry and its borrowers is in helping the public to understand what they can do about their mortgage payments if they fall into financial distress,” he said. “No matter how bad the situation seems, there is always advice and there is always a solution, but very often people don't know where to turn.”
Pepper Advantage works with financial institutions as a specialist mortgage data and service provider, and seeks to support those in trouble.
“As a business, we make a significant effort to reach these borrowers,” said Milburn. “A mortgage distress information campaign that is driven by the government would be a huge help to individuals, letting them know where to go if they’re experiences challenges, and would also help the mortgage industry identify and manage distressed debt early on.”
READ MORE: UK mortgage arrears up as costs continue to rise
What is the current rate of arrears growth?
Pepper Advantage’s recent UK Credit Intelligence Report suggests the rate of arrears growth is slowing but remains remarkably high. Rate of UK arrears growth slowed to 3.9% in Q1 2024 from 5.7% in Q4 2023; the lowest quarterly growth rate since the mini-budget of September 2022, it says.
The percentage of mortgages in arrears across Pepper Advantage’s UK portfolio grew by 3.9% in Q1 2024 compared to Q4 2023. This figure compares to a quarterly growth rate of 5.7% in Q4 2023 and 7.0% in Q3 2023. While the rate of arrears growth has slowed, the absolute rate of arrears remains at the highest level since 2008.
The report also suggests that older age groups have the highest absolute arrears rates. Homeowners aged 60+ and 51-60 saw the first and second highest levels of arrears respectively.
“Rates are expected to remain higher for longer and times are tough for borrowers,” Milburn observed. “Rates will eventually come down but the industry needs to understand that there will be a lag between any cut by the Bank of England and when borrowers will feel the benefits.
“Intermediaries need to remember this lag and take a ‘whole wallet’ view of their clients’ finances. This means understanding individuals’ whole financial ecosystem to identify and get ahead of pressure points to effectively understand risks and manage
