A growing number of homeowners and landlords fell into arrears with their mortgage in the second quarter of 2023, according to figures from a trade association.

UK Finance, which released the figures, said home repossessions are expected to rise, given ongoing cost-of-living challenges.

There were 81,900 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, which was 7% higher than in the previous quarter.

Within the total, 28,690 homeowners had arrears in the most severe band of more than 10% of the mortgage balance, which was up by 2% compared with the previous quarter.

There were 8,980 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, 28% higher than in the previous quarter.

Mortgages in arrears accounted for 0.93% of homeowner mortgages outstanding and 0.44% of buy-to-let mortgages outstanding in the second quarter of 2023, UK Finance said.

Some 610 homeowner mortgaged properties were repossessed in the second quarter of 2023, 19% fewer than in the previous quarter.

Lenders have been preparing for any continuing increases in arrears ... and have already helped over 200,000 borrowers before they have got into financial difficulty by restructuring their repayments

And 440 buy-to-let mortgaged properties were repossessed in the second quarter of 2023, which was 7% more than in the previous quarter.

A UK Finance spokesperson said: “The number of mortgage holders in arrears rose in (the second quarter) as higher mortgage rates and the cost-of-living continued to weigh on households.

“Although any rise in arrears can be worrying, overall numbers remain low with less than 1% of homeowners and less than half a per cent of landlords behind on their payments.

“Lenders have been preparing for any continuing increases in arrears, for example with the launch of the mortgage charter, and have already helped over 200,000 borrowers before they have got into financial difficulty by restructuring their repayments.

Landlords who are struggling financially due to mortgage arrears might try to offset their financial quagmire by raising the rent for their tenants

“The number of homeowner and buy-to-let possessions in (the second quarter) remain close to historic lows but are expected to continue to rise in line with our mortgage market forecast given the ongoing cost-of-living challenges.

“It’s important for homeowners and landlords to remember that there is support available to anyone struggling with their finances. If you think you might have difficulty making your mortgage payments, reach out to your lender early to find out the options available.”

Myron Jobson, senior personal finance analyst at interactive investor, said: “The uptick in buy-to-let arrears is a worrying sign for the rental market.

“With mortgage rates creeping higher in the current quarter, the worry is there will be a new wave of landlords facing financial strain in the near future when they remortgage. For many landlords, the uptick in mortgage costs is the final straw after years of being squeezed by higher taxes.

“Landlords who are struggling financially due to mortgage arrears might try to offset their financial quagmire by raising the rent for their tenants.”

Separate figures released by the Ministry of Justice showed that, across the county courts of England and Wales, there were 3,986 mortgage repossession claims between April and June, which was a 15% increase compared with the same period a year earlier.

There were 22,537 landlord repossession claims, marking a 24% increase compared with a year earlier.

Polly Neate, chief executive of Shelter, said: “The Renters Reform Bill will make renting more secure, and for those who live in fear of the bailiffs knocking at their door, these changes can’t come soon enough.”

Lisa Nandy, Labour’s shadow housing secretary, said Labour would abolish “no-fault” evictions as part of its renters’ charter.

She said: “We will build more homes, including social homes, and support families onto the housing ladder with a comprehensive mortgage insurance scheme.”

Under the mortgage charter, homeowners will not lose their homes within 12 months from a missed payment without their consent or in exceptional circumstances.

The Renters Reform Bill will abolish section 21 no-fault evictions to give tenants greater security in their homes and give tenants greater powers to challenge unfair rent hikes. The date for second reading stage of the Bill is subject to parliamentary scheduling and will be announced in due course.

A Government spokesperson said: “Home repossession is always a last resort and only a minority of evictions end up in the courts. Overall repossessions remain below pre-pandemic numbers but we understand the challenges people are facing and have measures in place to help, including financial support worth an average £3,300 per household.

“Our mortgage charter, covering 90% of the mortgage market, is already helping people by giving extra protections against repossessions and making it easier to manage monthly repayments.

“And our landmark Renters (Reform) Bill currently going through Parliament will further protect renters. It will abolish section-21 ‘no-fault’ evictions, giving tenants greater security in their homes, and more power to challenge unfair rent hikes, creating a private rented sector that is fit for the 21st century.”