UK Finance’s household spending review showed purchase activity fell after the stamp duty holiday tapered in June but remained 36 per cent up on last year.
Its report said this was notable as activity last year was bolstered by additonal factors beyond the stamp duty holiday such as delayed purchases due to the first national lockdown and the rush to complete on Help to Buy transactions before the scheme closed to non-first-time buyers.
The body said barring a complete reversal of activity in Q4, property purchases were expected to reach their highest level since 2006.
It added: “In Q4, with the stamp duty rates reverting to the pre-Covid-19 regime, we would expect to see some normalisation of growth across the country.”
UK Finance said with the stamp duty holiday now completely phased out along with other pandemic related support, Q4 would be the first without any “distorting impacts”.
“The volume of mortgage applications submitted to lenders in Q3 indicates that lending in Q4 – when most Q3 outstanding applications will complete – will still be in annual growth territory, albeit modest compared with the previous two quarters,” it added.
UK Finance said double-digit growth was already being seen before the pandemic in Q3 2019, suggesting purchase activity would remain healthy going forward.
Home movers driving growth
People moving home were the main drivers behind purchase activity UK Finance said, as it claimed they “disproportionately benefitted from the exemption” of the stamp duty land tax. However, it noted that the second and third phases of tax break were “less generous” higher valued properties.
UK Finance said: “The continued strength in home mover activity as the exemption was phased out, following nearly a decade of stagnation, suggests there could be a more persistent attitudinal change to come out of the nation’s experience during the pandemic.”
Self-employed lending ‘marginally’ behind employed
Despite the sentiment that lenders were being overly restrictive when it came to the self-employed, UK Finance said lending to these workers was “very similar” to the employed.
It said self-employed lending had displayed a “marginally weaker recovery path” as overall lending returned to more normal levels.
Homeowners withdrawing equity for additional properties
UK Finance said similar to previous reviews, homeowners were withdrawing more equity whilst remortgaging.
It said some of this was to pay for home improvements, but a significant proportion was likely going towards additional property purchases.
The average amounts of equity withdrawn peaked in June to £106,000, coinciding with a surge in purchase activity. However, this is unable to be properly tracked as data is only collected on the withdrawal of equity for home improvement, debt consolidation or “other purposes”.
At the same time, UK Finance said there was “little change” in the amounts withdrawn for debt consolidation either when releasing equity or when remortgaging.
“In fact, the proportion of remortgages where extra money was taken out for debt consolidation has been modestly lower throughout the pandemic than in the preceding years” it added.
In terms of refinancing, product transfers rose as borrowers favoured digital methods of obtaining new rates.
Arrears and affordability
Mortgage arrears declined overall in Q3, falling by 2,380 cases to 79,880. However, this was driven by those in early arrears as mortgage holders with arrears of 10 per cent or more of the overall balance fell deeper into debt.
Possessions also remained subdued due to the moratorium on involuntary repossessions during the pandemic.
In Q3, there were 700 possessions of mortgaged properties which equated to an 84 per cent increase on last year. However, UK Finance said the figure only seemed high as “virtually no enforced possession activity took place” at the time.
Of the 700 possessions, this was only a third of the typical number of Q3 possessions seen since 2015.
It also said these possessions were mostly related to those who were already at or near to the point of court proceedings at the beginning of 2020.
UK Finance said possessions activity would rise as the backlog of suspended activity made its way through the courts.
It said new possession cases would not be materially realised until 2023.
UK Finance added: “This time last year we estimated there were perhaps 5,000-6,000 backlogged possession cases. In 2021, we will likely see only around one third of that number in the final possessions figures. Therefore, the backlog has still some considerable way to go before it is completely cleared.”
It said any increases to mortgage rates would have a “limited immediate impact” on affordability, as three quarters of borrowers are on fixed rates.
The body also said existing stress rates would cover any significant increases in household spending so this would buffer any rises in inflation,
