The Bank of England’s Mortgage Lenders and Administrators statistics for Q2 showed that this was also the lowest value of gross mortgage advances in the first quarter of 2024, when this was £51.6bn.
However, there were signs of recovery ahead, as the data revealed that the value of new agreed mortgage advances jumped 14.6% quarter-on-quarter to £78.2bn, the highest figure since Q3 2022. This was also 16.8% higher than the previous year.
Mark Harris, chief executive of SPF Private Clients, said: “The fall in value of gross mortgage advances reflects the end of the stamp duty concession, whereby buyers brought forward purchases to the first quarter in order to take advantage of the savings to be made. However, the increase in value of new mortgage commitments to the highest level since Q3 2022, an indicator of future lending activity, indicates a growing resilience in the market, with borrowers confident to take on debt.
“There may no longer be a stamp duty concession available but several base rate reductions – with the prospect of more to come – are easing affordability and enabling borrowers to plan ahead and commit to purchases.”
Richard Pike, chief sales and marketing officer at Phoebus, said it was “encouraging to see new mortgage commitments at their highest level since 2022, signalling a strong pipeline of activity for the coming months”.
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He added: “While gross advances dipped sharply this quarter, the growth in remortgage activity reflects borrowers’ focus on securing the best possible deals in a volatile rate environment. Taken together, the data suggests a market that is steadying, with both lenders and borrowers adapting well to challenging conditions.”
High-LTV lending at highest since 2008
The Bank of England data showed that the share of gross mortgage lending at loan-to-value (LTV) ratios above 90% rose by 0.4 percentage points (pp) from Q1 to 7.1%, the highest share since the second quarter of 2008. Further, this was 1.1pp higher than the same period in 2024.
Within this, the share of mortgages advanced at over 95% LTV increased by 0.2pp to 0.5% quarter-on-quarter, which was also the highest share since Q2 2012. Compared to last year, this was a 0.2pp growth.
Gross mortgage advances at 75% LTV and higher contracted by 2.4 pp from Q1 to Q2, making up 43.4% of new business, but remained 0.6pp higher than last year.
High-LTI lending falls to two-year low
Although the market has seen a loosening in lending policy around high loan-to-income (LTI) lending, the share of this business fell by 3.7pp from the previous quarter to 41.5%, the steepest decline since Q1 2023. This was also 1pp lower than last year.
The central bank defines borrowers with high LTI as those with a single income borrowing at a ratio of four or above. This lending shrank by 0.7pp quarterly to 10.1% of the market, the first decrease since Q1 2024. However, it was still 1.8pp higher than last year.
Borrowers with a joint income and LTI ratio of three or above accounted for 31.4% of the market in Q2, a 3pp drop on the previous quarter and 2.7pp lower than last year. This was also the lowest share since Q1 2017.
Harris added: “Although lenders have been easing criteria, the decrease in lending to borrowers with a high loan-to-income ratio suggests that borrowers are not overextending themselves and rushing to take out bigger loans.
“However, with lending to first-time buyers decreasing compared with the previous quarter, it remains tricky for those trying to get on the ladder for the first time, particularly if they don’t have help from the Bank of Mum and Dad.”
Base rate impacting mortgage costs
The share of gross mortgage lending with interest rates less than 2% above the bank rate, including at or below it, fell by 1.5pp quarterly to 94.9%, representing the largest decline since Q2 2021. Compared to last year, this was 2.1pp lower.
The share of advances with rates between 2% and up to 3% above the bank rate was 2.6%, 0.9pp lower than in Q1 and the highest share since Q1 2023.
Further, the share of lending with rates 3% or more above the bank rate was at its highest since Q4 2023, making up 2.5% of the market. This was 0.6pp higher than the previous quarter and 0.7pp higher than last year.
The Bank of England said these movements were mostly influenced by the 25-basis-point cut to the base rate, rather than a significant change in mortgage interest rates.
Jump in BTL lending
Gross mortgage lending for buy-to-let (BTL) purposes rose 1.2pp quarterly to 9.2%, the highest share of this business since Q1 2023. This was also 0.2pp higher than in 2024.
Lending to owner-occupiers made up 90.8% of the market in Q2.
Among the mortgages advanced to owner-occupiers, the share of remortgages rose by 7.7pp from the previous quarter to 29%, the highest share since Q1 2024. This was 0.4pp higher than the same period last year.
Meanwhile, the share of lending for house purchases fell to its lowest since the first quarter of last year at 56%, which was a 10.3pp reduction on the previous quarter and a 1.4pp fall on last year.
Further advances and other mortgage lending, including lifetime mortgages, rose 1.4pp from Q1 to 5.8% of the market, the highest since Q3 2022. This was also 0.9pp up on last year.
Of the mortgage lending for house purchase, first-time buyers made up 27.4% of business, a 4pp drop on Q1. The share of advances to homemovers dropped by 6.3pp quarter-on-quarter to 28.7% of the market, the lowest since Q1 2023 and 1.4pp down on the same period in 2024.
New arrears at more than three-year low
The data showed that new arrears cases fell by 0.4pp to 8.8% in Q2, the lowest since Q1 2022.
The value of outstanding mortgage balances with arrears fell by 1% quarterly to £20.9bn, the lowest since Q4 2023 and 4.6% down on last year.
Of these, the value of non-regulated mortgages in arrears contracted by 2.8% from Q1 to £4.6bn, and 7.5% down on last year.
The proportion of all mortgage balances with arrears was flat on the last quarter at 1.2% and just 0.1pp lower than last year.
Richard Pinch, senior director for risk at Broadstone, said the data “paints a reassuring picture of stability in the mortgage market in the second quarter of the year”.
He added: “Arrears have fallen to their lowest levels since 2023, with new arrears cases also dropping back sharply – evidence that the impact of the cost-of-living crisis and higher rate environment continues to reduce. The recent Bank of England rate cut will feed through to those on variable rates and those looking for new mortgages providing further benefit.
“That said, this stability comes against a backdrop of uncertainty. With the Autumn Budget confirmed for 26 November, tax rises and possible property measures remain a concern. With households still facing higher living costs amid a fragile jobs market, there remains a risk that mortgage strain could return.”
