The rise was driven by the spike in mortgage applications we saw late last year and early this year, says UK Finance’s latest Household Finance Review
Annual lending to homemovers rose 15%, while loans to first-time buyers increased 19% — although longer-term offers remain high, according to second-quarter data from UK Finance.
The rise was driven by the spike in mortgage applications we saw late last year and early this year, says the banking trade body’s latest Household Finance Review.
It says: However, lending is still nearly 16% lower than in 2022 and we’ve seen mortgage applications tail off as house prices recovered. This suggests that growth may not continue through to the end of the year.
The review also notes the trend towards lending over longer terms among younger borrowers.
It notes: The trend of borrowing at longer terms remains higher than in the past. More than one in five first-time buyers took out loans with terms of 36 to 40 years during the second quarter.
However, our analysis of monthly payments versus incomes suggests that borrowers are increasingly using term stretch to get the mortgage size they need, rather than to manage their monthly payments, it says.
It adds that, affordability challenges continue to affect refinancing.
The study says that, external refinancing loans in the second quarter fell 12% compared with a year earlier to 408,000. Internal product transfers, where an affordability assessment is not needed, accounted for 82% of second quarter refinancing.
The body says that increases in payments for borrowers reaching the end of their fixed-rate deals appear to have peaked at the end of 2023.
This stems back to the increase in mortgage rates caused by the 2022 mini-Budget by former Prime Minister Liz Truss and Chancellor Kwasi Kwarteng.
The review notes: While customers’ new rates were typically three percentage points higher, they were still paying one percentage point below what their lender had calculated they could afford.
The study adds that mortgage arrears cases stabilised in the second quarter, declining very slightly from 109,900 at the end of the first quarter to 109,700.
Early arrears cases also declined, suggesting total arrears may drop again in the third quarter.
There were 1,620 mortgage repossessions in the second quarter, up 34% from the 1,210 in the second quarter of 2023, “but still substantially below pre-pandemic levels”.
The study says: The rise is due to the courts continuing to work through their backlog of historic long-term cases from before the pandemic.
