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Value of gross mortgage advances plummets to lowest level since lockdown – BoE

  • 12/09/2023
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Value of gross mortgage advances plummets to lowest level since lockdown – BoE
The value of gross mortgage advances completed in Q2 totalled £52.4bn, which was the lowest figure since the second quarter of 2020 when the country had entered lockdown and the property market was effectively closed.

According to the Bank of England’s Mortgage Lenders and Administrators Statistics, this was 32.8 per cent down compared to last year and £6.3bn lower than the previous quarter. 

Some 96.1 per cent of gross advances had an interest rate that was less than two per cent higher than the bank rate, which was a 2.3 per cent greater share of such mortgages since Q1. This was also 4.8 per cent higher than the year before and the highest since Q3 2007. 

The share of mortgage advances with interest rates between two and three per cent above the bank rate fell from 3.4 per cent to 1.7 per cent quarter-to-quarter. Meanwhile, the proportion of advances with interest rates three per cent or higher than the bank declined from 2.8 per cent to 2.2 per cent. 

Although fewer mortgage loans were issued, there was a rise in the value of new lending agreements to be advanced in the coming months. This increased by 26.2 per cent quarter-on-quarter to £61.7bn. Annually, however, it was down by 26.6 per cent. 

The central bank also noted that this was the first increase and highest value recorded since Q3 2022. 

Mark Harris, chief executive of SPF Private Clients, said: “Encouragingly, new mortgage commitments picked up in Q2, indicating there are still those keen to move who are getting on with it. 

“Even though borrowers are paying more for their mortgages, this is not putting them off as they tighten their belts and absorb the higher cost of borrowing. The good news is that mortgage pricing continues its downwards trend, even though another base rate rise is expected next week.” 


Rise in high LTV lending 

There was a 0.4 per cent rise in the share of advances with loan to value (LTV) ratios higher than 90 per cent, which accounted for 4.4 per cent of lending. This was only 0.1 per cent lower than last year. 

Within high LTV lending, 0.2 per cent of advances were for mortgages at higher than 95 per cent LTV which was flat on the previous quarter. 

The share of mortgages with LTVs higher than 75 per cent rose by four per cent to 36.5 per cent in Q2, which was 1.7 per cent lower than the year before. 

Some 45.3 per cent of lending was issued to borrowers with a high loan to income (LTI) ratio during the quarter. This was 1.6 per cent higher than Q1 but 5.2 per cent down on the year before. 

Borrowers on a single income with an LTI ratio of four or above accounted for 8.1 per cent of gross lending in Q2, which was a 1.1 per cent fall on the previous quarter and the lowest share since Q1 2009. 

Borrowers on a joint income with an LTI ratio of three or above made up 37.2 per cent of gross lending. This represented a 2.7 per cent rise compared to Q1. 


BTL lending drops to 13-year low 

In Q2, 8.1 per cent of gross mortgage advances were for buy-to-let purposes. This was a 1.7 per cent drop on Q1 and a 5.5 per cent decline compared to the same quarter last year. This was the lowest observed since Q4 2010. 

SPF Private Clients’ Harris said the decline in buy-to-let lending was “unsurprising given the tax and regulatory changes which have hit the sector hard, although experienced investors continue to seek out opportunities and expand their portfolios”. 

Mortgage advances for owner occupiers made up 91.9 per cent of lending. Within this, 32 per cent of lending was for remortgage. The share of remortgage activity rose by five per cent annually but declined 2.7 per cent on a quarterly basis. 

Some 54 per cent of owner occupier mortgages were for house purchases, which was 3.9 per cent up on the previous quarter and 1.6 per cent higher than last year. 

Within the mortgages for house purchases, there was a 2.2 per cent rise in lending to first-time buyers to account for 24.6 per cent of advances. This was also 1.9 per cent higher than Q1. There was a 0.6 per cent annual drop in lending to home movers, who made up 29.4 per cent of advances. This was two per cent up on the previous quarter. 

Further advances and other mortgages, including lifetime mortgages, made up 5.8 per cent of gross advances during the period. 


Arrears on the up 

In Q2, there was a 13 per cent rise in the value of outstanding mortgage balances with arrears to £16.9bn. This was also 28.8 per cent higher than the year before and noted as the highest value since Q3 2016. 

The Bank of England defines this as properties that are in possession or payments that are at least 1.5 per cent behind on the outstanding balance. 

The share of total loans in arrears rose from 0.89 per cent to 1.02 per cent from Q1 to Q2 and this was the highest share since Q1 2018. 

New arrears cases accounted for 16 per cent of the total outstanding balances in arrears this year, which was flat on the preceding quarter. 


‘We’re about to see a mortgage meltdown’ 

Brokers shared their views on the sharp rise in arrears. 

Lewis Shaw, owner and mortgage expert at Shaw Financial Services, said: “The speed at which mortgage arrears are increasing is terrifying and should give cause to pause at the next Bank of England interest rate meeting. This is dire data, and we know that it’s about to get an awful lot worse with 1.6m mortgage holders due to renew over the next 12 months at significantly higher rates than anyone has been used to for well over a decade.  

“We’re still at the thin end of the wedge, so unless we have a change of direction from Andrew Bailey, we’re about to see a mortgage meltdown for thousands of households that will ripple through the property market for years to come. If this isn’t the canary in the coal mine, I don’t know what is.” 

Jamie Lennox, director at Dimora Mortgages, said the data made for “bleak reading” especially considering that much of the effect of the base rate rises were yet to feed through. 

He added: “The percentage of arrears in 12-18 months’ time when more people have come off their ultra-low rates could be dramatically higher. The Bank of England runs the real risk of overcooking the base rate increases with long-term damage to the housing market and the finances of millions.” 

Darryl Dhoffer, mortgage expert at The Mortgage Expert, said the plans of the government and the Bank of England to tackle inflation were now having “tragic results”. 

“Forecasting a stat on paper is one thing, but living the experience for already hard-pushed consumers, is tragic to say the least.  

“These arrears will continue for months if not years ahead, unless both the Monetary Policy Committee and the government, work closer together, to look at other taxation options and benefit schemes, to alleviate the pressure that households are experiencing – just using Bank of England base rate rises, will lead to further pain and misery, and will lead to a UK wide recession that we have never seen before,” he added. 


Some views cited in this piece were sourced from Newspage. 

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