The Bank of England’s Mortgage Lenders and Administrators report showed that although the value of completed mortgages declined, the pipeline pointed to a rebound in activity.
The value of new mortgages agreed rose by 11.5% on the last quarter to £78bn and was up by 14.2% when compared to the same period last year.
Rob Clifford, chief executive of Stonebridge, said it looked like a “contraction and expansion at the same time”, but the “wild swings in numbers are really just a mirage”.
Clifford added: “Ignoring the annual figures this time around is the only way to take the temperature of the market, all thanks to a distortion last year.
“A stamp duty cliff edge had caused a rush of applications and lending, creating both flattering and unflattering year-on-year comparisons. However, there’s still plenty of momentum out there. In fact, despite the invasion of Iran in February, new mortgage approvals are holding their own and were up significantly the very next month, also rising year-on-year.”
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Clifford said even if the conflict in the Middle East and rising borrowing costs dented new home purchases, the market was still “in the midst of a remortgaging wave”, which would “smooth out the effect of any volatility for advisers who position themselves well in the coming months”.
Richard Pike, chief sales and marketing officer at Phoebus Software, said the figures showed that the mortgage market had made a “steady start” to the year.
He added: “The fall in gross mortgage advances shows the market was still weak at the start of the year, but the rise in commitments shows that confidence was picking up in Q1 before the market shocks caused by the Iran conflict.”
Pike said there was a continued shift towards remortgaging, which would remain a “defining feature of the market throughout the year” as borrowers adapted to higher rates.
More mortgages priced notably above the base rate
The share of gross mortgage advances with interest rates less than 2% above the bank rate, including at or below it, fell by 0.2 percentage points (pp) quarter-on-quarter to 94.7%. The central bank said this was the lowest share since Q1 2023 and 1.9pp down on the year before.
The proportion of mortgages completed with interest rates between 2% and up to 3% above the bank rate rose by 0.1pp from the last quarter to 3%, also the highest since Q1 2023. Compared to last year, this was 1pp higher.
The share of advances with interest rates 3% or more above bank rate stayed flat on the previous quarter at 2.4%, and was 0.9pp higher than a year earlier.
Small rise in BTL lending
The proportion of gross mortgage lending for buy to let (BTL), covering house purchase, remortgage and further advance, rose by 0.5pp from the previous quarter to 8.9% and was 0.8pp higher than the year before.
Some 91.1% of mortgages were advanced to owner-occupiers, and of that, the share of lending for remortgages increased 2.7pp quarter-on-quarter to 28.1%. This was also 6.8pp higher than last year.
The share of owner-occupation lending for house purchase decreased by 3.9pp to 57.7% compared to the last quarter, and was an 8.6pp fall on the previous year.
There was a 0.8pp quarterly rise in further advances and lending for other mortgages, including lifetime mortgages, to 5.3% of the Q1 market. This was 1pp higher than the year before.
Of the 57.7% share of lending for house purchases, lending to first-time buyers fell by 1.2pp from the previous quarter to 27.4%. This was a 3.9pp drop on the same period last year.
There was a 2.7pp drop to 30.3% in the proportion of lending to homemovers, 4.6% down on the last year.
High-LTI lending stays stable
The share of mortgages issued to borrowers with a high loan-to-income (LTI) ratio declined by 1.3pp from the previous quarter to 45.1%.
The central bank said this was at similar levels to the year before.
High-LTI borrowers are defined as those on a single income borrowing at ratios of four or above, and lending to this type of borrower fell 0.3pp from the previous quarter to 12.1%. This was the highest since Q2 2021, and was 1.3pp higher than the year before.
For borrowers with a joint income and LTI ratio of three or above, the share of lending fell 1.6pp from the last quarter to 33%. This was 1.4pp down on the year before.
Arrears continue falling as new possessions increase
The value of outstanding mortgage balances with arrears came to £20.1bn in Q1, a 1.7% drop on the previous quarter and the lowest value since Q3 2023. Annually, this was a 6.3% fall.
Within this, the value of non-regulated mortgages in arrears, including BTL and other residential lending where the property is not for use by the borrowers, decreased by 4.1% from the previous quarter to £4.4bn. This was also the lowest value since Q3 2023 and 11.9% down on the year before.
The proportion of total mortgage loan balances with arrears, relative to all mortgage stock, was stable compared to the preceding quarter at 1.1% and 0.1pp down on last year.
The share of outstanding mortgages with new arrears fell by 0.1pp from the previous quarter to 9.3%, but was 0.1pp higher than the same period last year.
There was a 1.6% rise in the number of new possessions in Q1 to 2,216, but this was still 4.3% lower than last year.
The total stock of possessions fell by 0.8% compared to the previous quarter to 9,247, the first recorded fall since Q1 2021. However, this was 20.6% higher than the year before.
Phoebus’ Pike said the fall in arrears highlighted borrower resilience and would reassure lenders that, despite rising costs, people continued to keep on top of payments.
He added: “We saw a gradual increase in possession activity, although the numbers remain lower than last year. While I don’t believe it’s cause for alarm, it’s important that lenders remain vigilant and ensure their servicing teams are equipped to support those customers who may still be vulnerable.
“Looking ahead, the key challenge for the market will be balancing affordability constraints with the need to support lending growth. While I expect to see modest growth over the course of the year, sustained momentum will depend on further improvements in consumer confidence and greater certainty around the interest rate outlook.”
