The Mortgage Lenders and Administrators Statistics produced by the Bank of England and the Financial Conduct Authority showed that the value of outstanding balances with arrears increased by 4.6 per cent over the quarter and 1.3 per cent over the year to £13.6bn.
The proportion of loans in arrears also rose to 0.81 per cent of outstanding balances, but this is still close to the historical low of 0.78 per cent recorded in Q3 2022.
Those owing 10 per cent or more of their outstanding mortgage balance and those behind on payments by 2.5 to five per cent accounted for most of the arrears, each at a share of 0.22 per cent.
Adam Oldfield, chief revenue officer at Phoebus Software, said although there had been a rise, arrears were still very low.
He added: “We could see this picture change in the coming months if predictions from Fitch last week play out. Nevertheless, even if the increase is to 1.5 per cent over the course of this year, it will be to more normal levels, rather than alarming levels.”
Mortgage lending slips
The value of new mortgage commitments, which is lending agreed to be advanced in the coming months, fell to the lowest level since 2015 when the effects of Covid were discounted.
It came to £58.4bn in Q4, a 33.5 per cent drop on the previous quarter and 24.5 per cent lower than the same period in 2021.
The value of gross mortgage advances came to £81.6bn during the quarter. This was £4.3bn down on the previous quarter but 16.3 per cent higher than the year prior when the value was £70.4bn.
Oldfield added: “The fact that new mortgage commitments were down will come as no surprise to anyone but, given the number of people coming off fixed rate deals it is a little surprising to see that remortgaging was also down.
“This may well be because borrowers didn’t know which way to go when the economy was looking so fragile in the last quarter of 2022. It looks like there was a significant proportion of people that let their fixed rates move onto standard variable rates with their current lenders, waiting to see what will happen to interest rates before fixing again.”
Charlotte Nixon, mortgage spokesperson at Quilter, said the period leading up to Christmas was “rife with uncertainty” but the outlook was less unpredictable now.
She added: “After the troubling days following the mini Budget, mortgage rates have dropped faster than originally anticipated and therefore there is a chance that this will help encourage more people to market and more people will be seeking a mortgage.
“As lenders take part in a race to encourage more people to market, we are seeing rates somewhat stabilise as they compete for custom.”
Income ratios and LTV tiers
Mortgage advances at a high loan to value (LTV) of 90 per cent or above was flat on the previous quarter and accounted for 5.1 per cent of business in Q4. Annually, this was 0.9 per cent higher, which was the highest level seen since Q1 2020.
The share of mortgages advances at an LTV of 75 per cent or higher fell by 1.4 per cent to account for 37 per cent of lending. Compared to the year before, this was 0.3 per cent higher.
The proportion of mortgages issued to people with a high loan-to-income (LTI) ratio dropped by 2.2 per cent to 49.3 per cent in Q4, which was 0.8 per cent down on the same period a year earlier. It was the lowest share since Q3 2021.
Borrowers with a single income who had an LTI ratio of four or above made up 10.6 per cent of gross mortgage lending in Q4, a 0.6 per cent decrease on Q3. Those with a joint income and an LTI of three or above accounted for 38.7 per cent of gross lending. This was 1.6 per cent down on the previous quarter.
Lending to first-time buyers rises
In Q4, first-time buyers made up 24.2 per cent of gross advances for house purchase to owner occupiers. This was 0.9 per cent more than the same period a year prior and 0.9 per cent higher than the previous quarter. It was also the highest level of lending to first-time buyers since Q3 2021.
Overall, 55.4 per cent of advances during the period were made to owner occupiers for house purchases.
The share advanced to homemovers rose by 1.5 per cent annually to 31.2 per cent, but was 1.7 per cent down on the period before. Remortgages made up 27.3 per cent of gross advances, which was a quarterly decline of 0.8 per cent. However, this was up by 2.4 per cent when compared to the previous year.
Further advances and other mortgages, including lifetime mortgages, accounted for 5.4 per cent of gross advances.
In total, advances to owner occupiers who were first-time buyers, homemovers, later life borrowers and remortgaging accounted for 88.1 per cent in business in Q4.
Gross mortgage advances for buy-to-let made up 11.9 per cent on lending in Q4 2022, which was 0.6 per cent down on the previous quarter.
James Bawa, chief executive of PEXA UK, said: “Looking ahead, it’s likely we’ll see demand increase in remortgaging. A rising interest rate environment will continue to spur borrowers to shop around, while those who took out a two-year fixed rate mortgage during the stamp duty holiday in 2021 will come to the end of their deal.”
Mortgage rate squeeze
The share of gross mortgage advances with a rate that was less than two per cent more than the bank base rate was 93.6 per cent, 0.7 per cent higher than in Q3. It was also 22 per cent up on 2021, and the highest level seen since Q2 2008.
The share of advances with a rate of between two and three per cent more than the bank rate fell from 4.2 per cent to 3.8 per cent. Meanwhile, the proportion of advances with interest rates three per cent or higher than the bank rate declined by 0.3 per cent since Q3 to a share of 2.6 per cent.
Mortgages with a rate that was four per cent or more above the bank rate accounted for 1.45 per cent of gross advances in Q4.
