In UK Finance’s household finance review for Q4 2021, the trade body said: “With full year data now available, we can look back on 2021 as a quite remarkable, expectation-busting, year for housing and mortgage markets.”
Stimuli such as the stamp duty holiday resulted in the number of loans to buy property rising by 41 per cent annually. While the growth was unprecedented, this partly reflected delayed activity from 2020.
In total, property transactions came to just under 1.5 million in 2021.
Compared to 2020, activity from buy-to-let landlords rose by 68 per cent over the year, homemover activity increased by 43 per cent and first-time buyer activity went up by 33 per cent.
However, purchase activity dropped sharply in Q4, but UK Finance said this was expected due to the end of the stamp duty holiday.
Homemover activity was 36 per cent down year-on-year, and first-time buyer activity was down 12 per cent.
Post-stamp duty holiday declines in lending in Q4 were seen across every region of the UK, with this being significantly greater for homemovers than for first-time buyers everywhere except for Scotland.
UK Finance said this was expected as the tax break benefitted homemovers most.
The greatest drops in activity were recorded in the South East and South West. Both regions saw some of the strongest growth figures in 2020, driven by homeowners looking to move or buy additional properties away from London.
Lending activity
UK Finance data on mortgage applications indicate lending will return to growth in early 2022, and so far there were two per cent fewer mortgage applications submitted in Q4 2021 than in the same quarter a year previously.
UK Finance said this was notable as it represented healthy and sustained growth when compared to pre-pandemic levels.
Growth in lending has varied across regions so far this year, with southern English regions outside of London showing modest annual declines while other areas return to annual growth.
All regions of the country, barring Scotland, look set to show growth in lending when compared with pre-pandemic levels.
The trend of withdrawing equity when remortgaging to fund additional property purchase tailed off after the tax break, but amounts withdrawn for ‘other reasons’ appear to still be significantly up on pre-pandemic levels. However, these are also on a downward path.
The second reason for withdrawing equity – to fund home improvements – has remained persistent which UK Finance said reflected a continued move towards better home living and home working.
Refinancing in Q4 followed the pattern of maturing fixed rates with a particular spike seen in November across both product transfers and external remortgage.
UK Finance said this coincided with the popularity of five-year fixes five years ago and expected the trend to continue into 2023.
Arrears and possessions
Arrears overall continued to fall in Q4 2021, following the trend seen through the whole of 2021.
UK Finance said this was important as this was the first arrears data since the removal of the coronavirus job retention scheme and mortgage payment deferral scheme.
It said while it would take time for reportable arrears to increase, it was “encouraging” that there was no immediate rise in borrowers unable to meet mortgage payments.
UK Finance added: “Within the downward trend for overall arrears numbers, we have seen the number of customers in deeper arrears, who already had significant payment shortfalls before the pandemic struck, continue to increase.”
It said the possessions moratorium and restricted court capacity meant borrowers in unrecoverable positions who would have normally exited their mortgage through possession have instead seen their financial position worsen.
This is set to ease over the year and into 2023 as the backlog of possessions clears.
Rising cost of living
As unemployment levels did not increase as forecast, this would not impact arrears but UK Finance warned inflation and the rising cost of living would threaten household finances and mortgage payments.
Although this may not impact the two-thirds of borrowers on fixed rate mortgages, because those on variable rates tend to have lower savings this will add pressure to their finances.
Despite an expectation for arrears to rise, the body said responsible lending rules will moderate this.
It said “prudent underwriting” helped this, which is indicated by data which shows that at the time of application, 70 per cent of borrowers used less than a fifth of their gross income to meet payments, and almost all used less than 30 per cent.
The report said: “This points to a sizeable majority proportion of income left over after mortgage payments for the vast majority of mortgage customers. This provides borrowers significant room to flex other outgoings, as they typically prioritise payments on their home above other outgoings.
“However, it should be noted that, within lower income brackets, a higher proportion of borrowers have less room to manoeuvre. Again, this suggests that, at the margins, inflation is likely to place pressure on arrears numbers, particularly amongst lower-income households.”
When the ban on unvoluntary possessions was lifted in 2021, possessions rose but restricted court capacity limited the cases which could be dealt with.
Possessions remained at historically low levels in Q4 2021, with activity further suppressed by the voluntary industry suspension of possessions activity over the festive season.
As a result, possessions numbers remained far lower throughout 2021 than normal, even at the lowest point in the possessions cycle. For example, at the lowest point in the early 2000s there were 8,200 annual possessions. Last year saw a total of 2,250 mortgage possessions, just over one quarter of that previous low.
Looking ahead, possessions are forecast to rise from these “abnormally low” levels, but this is only expected to increase to previous lower levels. UK Finance said this was because most possessions in progress were cases which began in 2020 and new arrears were on a downward trend.
Lee Hopley, director of economic insight and research at UK Finance, said: “House purchase numbers fell in the fourth quarter following the end of the stamp duty holiday, although there are signs of continued demand for more space as working from home becomes a part of regular life. Looking ahead, the rising cost of living will likely affect appetite to buy or move home this year.
“It is encouraging that arrears are still trending down, with no early signs yet of any difficulties in repaying unsecured debts. However, while households look to be in a good position regarding payments now, we expect some increase in arrears through the year as the rising cost of living starts to bite.
“Any customers worried about meeting their loan repayments should speak to their lender as soon as possible to discuss the best options for them.”
