The Bank of England (BoE) Mortgage Lenders and Administrators analysis of the quarter showed that the share of buy-to-let mortgage activity was also five per cent down on the year before.
‘Inhospitable tax environment for buy-to-let landlords’
Karen Noye, mortgage expert at Quilter, said: “This demonstrates quite how inhospitable the tax environment has become for [buy-to-let] landlords. Many are now choosing not to bother adding to their property portfolios or to leave the market altogether as a result.
“Landlords have faced successive changes to the tax landscape over the last few years making it harder and harder to turn a profit. Despite this, rents have skyrocketed as the number of properties available to rent dwindles.”
Uptick in purchases
Gross mortgage advances to owner occupiers made up 92.5 per cent of business in Q3.
Within the owner occupier activity, the share of advances for remortgages fell by 2.7 per cent from Q2 to Q3 to reach 29.4 per cent. This was 4.4 per cent higher than the previous year.
There was a 3.5 per cent rise in lending for house purchase quarter-on-quarter, as it reached 57.4 per cent of activity in Q3. Compared to last year, this was up by 1.3 per cent.
Further advances and other mortgages, including lifetime mortgages, accounted for 5.7 per cent of owner occupier gross advances in Q3.
First-time buyer activity hits high
Some 25.8 per cent of advances for house purchase was to first-time buyers, a 1.2 per cent rise on the previous quarter and 2.5 per cent up on 2022. This was also the highest share of first-time buyer lending since reporting began in 2007.
The share of advances to home movers rose by 2.3 per cent over the quarter to 31.7 per cent, and was 1.2 per cent down on last year.
Gross mortgage lending rises first time since 2022
The value of gross mortgage advances in Q3 reached £62.2bn, which was an 18.6 per cent rise compared to Q2 and the first increase recorded since the same quarter last year. However, this value was 27.6 per cent down on the prior year.
The outstanding value of all residential mortgages fell by 0.1 per cent from Q2 to Q3 to reach £1.65trn. This was a 0.8 per cent fall on 2022.
The value of new mortgage agreements decreased by 16.5 per cent to £51.5bn on a quarterly basis, and was 41.4 per cent down annually.
More people in arrears
There was a 0.3 per cent rise in new arrears cases in Q3 to account for 15.8 per cent of all mortgage balances. This was up by 5.1 per cent on last year.
The proportion of mortgages in arrears rose from 1.02 per cent in Q2 to 1.14 per cent in Q3, which was the highest level since Q2 2017.
The value of outstanding mortgages in arrears also increased by 11.4 per cent to £18.8bn and was 44 per cent higher than in 2022.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said people with bigger mortgages had been hit harder, adding: “While the total amount in arrears is soaring, the total number of borrowers was up less dramatically over the year – and actually fell over the quarter.
“It reflects how those who stretched their finances to get onto the property ladder, or trade up, are paying a horrible price for it now as their mortgage deals come to an end.”
She said the mortgage “pain is far from over” and a small section of borrowers would be affected each month “over a horribly prolonged period of time” as their rates matured.
“With so many people moving from a fixed rate of less than two per cent to around six per cent, it’s no surprise that so many are hitting a brick wall financially,” Coles added.
High LTV and LTI lending
Some 4.8 per cent of gross mortgage advances in Q3 were at loan to value (LTV) ratios higher than 90 per cent, which was a 0.4 per cent rise on Q2. This was 0.2 per cent lower than a year ago, however.
The share of mortgages issued at 95 per cent LTV or above stayed flat on both the previous quarter and previous year at 0.2 per cent.
There was a 2.2 per cent quarterly growth in the proportion of advances at 75 per cent LTV and above to 38.7 per cent of activity. This was 0.3 per cent higher than in 2022.
The share of loans lent to borrowers with a high loan to income (LTI) ratio increased by 3.9 per cent to 49.3 per cent from Q2 to Q3 and was 2.1 per cent lower than a year ago.
Borrowers with a single income and an LTI of four or above accounted for eight per cent of gross mortgage lending, a 0.1 per cent drop. This was the lowest share since Q1 2009.
Joint income borrowers with an LTI of three or above made up 41.3 per cent of lending, a rise of 3.9 per cent since Q2. This was the highest since reporting began in 2007.
Some 96.1 per cent of gross mortgage advances had rates of less than two per cent above the base rate. This fell by 0.1 per cent from the previous quarter and was the first decline since Q2 2021 before the base rate started to rise. Compared to last year, the share of mortgages with this pricing was 3.1 per cent higher.
The share of mortgages with interest rates between two and three per cent higher than the base rate increased from 1.7 per cent in Q2 to 1.9 per cent in Q3. The proportion of loans with interest rates three per cent or higher than the base rate fell by 0.1 per cent over the quarter to make up two per cent of advances.
