Laura WilesThe FCA has published a research note on mortgage arrears risk among first-time buyers, using loan-level Product Sales Data spanning 2015 to 2025.
Higher income and – on average – incentivised interest rate offers are both associated with lower risk of arrears, although incentivised rates appear to increase risk later on. The research also noted the importance of consumer engagement, as switching mortgage product may reduce arrears risk.
High first-time borrower leverage, particularly above 80/90% loan-to-value rates, is one of the strongest risk indicators for arrears, as more highly leveraged buyers have less capacity to absorb financial shocks. This was compounded by the fact that the first-time buyer sample was a relatively young demographic with a median age of 30, so borrowers may not have had time to build savings or equity buffers to protect them from such shocks.
Other arrears risk indicators included:
- Tracker mortgages – the research here reflected sharp increases in base rates from 2022 and 2023, which impacted a large number of sampled first-time buyers on tracker rates;
- Previous credit impairment;
- Being self-employed;
- Buying a home under a government scheme like Help-to-Buy; and
- Having dependent children.
Arrears risk also was not concentrated at the time of origination. Probability tends to rise over the first few years of borrowing before a decreased plateau, suggesting that financial circumstances change over time, or that financial stress varies as borrowers face changing economic conditions.
The research note comes as the FCA has published a consultation on further changes to mortgage lending rules to enable lending to an increased amount of creditworthy customers, and the regulators have published their quarterly mortgage lending data.