Seven years after the crash, we can now draw on years’ worth of lending statistics to explore the post-recession mortgage borrower’s financial habits. While some market segments have steadily rebounded, others remain much reduced.
IMLA’s latest report suggests the greatest evidence of a change in borrower behaviour is the sharp decline of further advances. The market’s Q2 2015 lending total of £1.3bn was still less than half of the quarterly average of 2008. Indeed, instead of taking out a further advance on their property, borrowers pumped a record £13.7 bn of equity into their homes in the first quarter of 2015.
The poor performance of further advances in some ways parallels the lacklustre performance of another sub-market: remortgages. The Standard Variable Rate differential has risen to a record of nearly 3% this year, and homeowners are also sitting on more than £5trn of housing equity, but there is little sign that they are in any hurry to return to old habits and rush to remortgage to draw down some equity. This may be because borrowers are paying highly advantageous rates and have little incentive to remortgage.
We can also conclude that consumers are not confident enough or motivated to start releasing equity en masse, and are instead using their homes as safety deposit boxes rather than cash machines as they were before the crisis hit. It suggests an encouraging shift in mentality: it’s no longer deemed fashionable for borrowers to spend beyond their means, leaving more options for them to bring housing wealth into play during later life.
As we continue to see unprecedented levels of mortgage deleveraging ‒ equivalent to more than 4% of households’ post-tax income ‒ it should certainly give the regulator something to think about when judging the threat posed by the mortgage market to overall financial stability.