According to the Bank of England’s Money and Credit report, gross mortgage lending fell to £25.4bn from £28.1bn in May. Gross repayments also decreased to £20.3bn from £21.2bn over the month. 

Net borrowing of mortgage debt also dropped, from £8bn in May to £5.3bn in June. However, this remains above the pre-pandemic average of £4.3bn in the year to February 2020. 

Typical slowdown 

It was noted by industry figures that it was expected for activity to slowdown in the summer months as people went on holiday. 

Simon Webb, managing director of capital markets and finance at LiveMore Capital, said: “The drop in mortgage borrowing by some £2.7bn heralds the move towards the slower time for house purchases during the summer months.”

John Phillips, national operations director at Just Mortgages, said: “Although this may at first seem like a significant fall in net lending in June, we should remember that there was a considerable spike in May and volumes are still well above the pre-pandemic average. 

“We are expecting borrowers’ ability to satisfy lenders’ affordability rules to be affected by increases in household spending on fuel, food and energy but this has yet to materialise is any significant way and there is still an appetite from borrowers to secure a deal before further rate rises. However, completion times are being stretched and so we should expect a lag in housing transactions over the coming months.”

Geoff Garrett, director of Henry Dannell, said: “A previous flurry of spring mortgage market activity had reversed the steady decline in mortgage approvals seen so far this year, however, it seems as though this has been short-lived, and the latest figures once again show a reduction in buyer appetites with approvals reaching their lowest point since June 2020.    

“It’s likely we will now see mortgage approvals see-saw marginally up and down from month to month as a result of seasonal influences, but we expect to finish the year at a much lower threshold when compared to the unusually high records set during the pandemic.” 

Approvals fall as rates climb 

Approvals for house purchases fell to 63,726 in June, from 65,681 in May which the central bank noted was below the pre-pandemic average of 66,700 in the year to February 2020. 

Remortgage approvals for borrowers switching to a new lender also dropped to 44,049 from 47,244 in May. This is also below the pre-pandemic average of 49,500 in the 12 months to February 2020. 

Webb added: “Combined with a drop by 2,000 of approvals for house purchases, these reductions may also reflect a growing nervousness in the market as interest rates rise.”   

The effective interest rate on newly drawn mortgages rose 20 basis points to 2.15 per cent in June, while the rate of outstanding mortgages ticked up by four basis points to 2.11 per cent. 

Mark Harris, chief executive of SPF Private Clients, said: “While there are still signs of strong activity in the housing market, it is noticeably calmer than the frenzy of last year. With the effective interest rate on new mortgages rising by 20 basis points to 2.15 per cent in June, it is no surprise that mortgage brokers remain busy. Borrowers are worried about rising rates and are keen to secure a fixed-rate mortgage before they become more expensive.

“With the money markets pricing in another rate rise at August’s meeting of the Monetary Policy Committee, there is some urgency to lock into the best deals.”

The Colchester-headquartered firm has 618 brokers and claimed it was on target to reach its goal of recruiting 1,500 brokers by 2027; a total which it said will be comprised of 1000 self-employed brokers, 425 employed and 75 wealth advisers.  

Just Mortgages operates throughout the UK, selling both mortgages and protection. Its brokers offer independent mortgage advice in addition to other financial solutions. It offers advice on mortgages including buy-to-let and new build products.

Just Mortgages said it aimed to become one of the largest mortgage broker firms in the UK by attracting brokers already in the industry but that expected most growth would continue to come via its academy initiative.

Just Learning, which launched earlier this month provides blended learning and is a standalone proposition. Those who graduate will be offered an interview with a sales manager to discuss joining Just Mortgages on an employed or self-employed basis.

Just Learning focuses on the CeMAP 1 qualification and includes in-depth sales skills and client management training. It is structured over two weeks which can be taken either together or at different times.

John Phillips (pictured), national operations director at Just Mortgages said: “The recruitment team just deliver month after month, and we are thrilled to welcome new brokers to the Just Mortgages family.”

He added: “Once brokers are qualified that is very much the beginning of the journey with us, not the end. Their success is our success, and it is our job to provide brokers with the tools they need to deliver the best possible service to their clients. Over the next few years as rate rises and cost of living begins to bite into household budgets, the value of advice will increase substantially.

“We are going to play our part in ensuring that there is a strong and professional mortgage advice sector to help individuals and families with their borrowing and protection goals.”

According to UK Finance’s latest household finance review, homemover numbers in Q1 2022 were 42 per cent lower than the same period last year and first-time buyer numbers were 12 per cent down.

This was attributed to “unprecedented volumes” at this time last year due to the stamp duty holiday, therefore the drop-off was expected after its phasing out.

The report said the number of mortgage applications submitted in Q1, most of which are expected to complete in Q2, were two per cent greater than the same period last year. It said this growth was due to strong remortgage activity.

It continued that it expected “relatively robust” house purchase activity in Q2 but it would show a year-on-year decline given the strong activity last year.

UK Finance said first-time buyer activity was trending above pre-pandemic levels but the outlook for 2022 was unclear.

It explained that as first-time buyers tended to be younger and lower on the income scale, there could be “greater downward pressure” on this group from cost of living crisis.

The report said tax increases and rising inflation had not yet fed through into mortgage completions but “material changes” such as energy bills and tax changes, could start to feed through in Q2.

Disposable income will contract for mortgage households

UK Finance said the average mortgaged household would experience a three per cent fall in the amount of disposable income left after mortgage, credit commitments and living costs.

It said this would have a “relatively modest impact on effective demand” and the average affordability assessment would only experience a “small downwards impact”.

UK Finance continued that the average borrower had over half of their net income to spare after subtracting all these items.

It added that the cost of living crisis would be felt most acutely in the lower-income brackets as people in this bracket have around half the spare income compared to those in higher brackets.

However, it said most borrowers across all income brackets would have a “good proportion of income” and would still qualify for mortgage credit as they did last year but those at the margins would struggle.

Product transfers most popular remortgage option

The report said the proportion of total remortgages where extra money was taken out has fallen to 50 per cent, which is the typical level since 2012.

It said that over the past two years, equity withdrawal in total remortgage activity had risen.

UK Finance added that internal product transfers dominated activity, with eight in every 10 customers taking a product transfer with their current lender.

It said the split between product transfers and external remortgaging was “erratic” as it was influenced by fixed rate maturity schedules and retention strategies.

However, UK Finance said product transfers had started falling to pre-pandemic levels, but they were still the preferred option.

Equity withdrawal for home improvements ‘significantly elevated’

The report said that equity withdrawal was returning to pre-2020 levels and that the amounts taken out for home improvements were “significantly elevated”.  It explained that this reflected inflation and growing cost of labour and materials.

“These increased costs are likely to keep the pound values for remortgage activity higher, particularly whilst the current Covid-triggered wave of improving and adapting living spaces persists,” it said.

It added that it had not seen a “material increase” in money withdrawn to consolidate more expensive debt into a mortgage, although average amounts have been slowly trending upwards, which reflected inflation.

UK Finance said this showed that cost of living increases had yet to feed through into the build-up of unsecured debt.

Arrears continue to fall

The report continued that arrears had fallen in Q1 this year to 81,480, which compares to 85,610 seen at Q4 last year.

It said as arrears took time to accrue, it did not expect rate increases to feed through into arrears until the end of Q2, and noted that mortgage pricing still remained low by historic comparisons.

It added that heavy arrears fell by 650 cases to 31,070 and this was the first quarterly decrease since Q4 2019.

The trade body said this had been rising since the start of 2020, partially due to the possessions moratorium as cases that would have gone through this process remained in arrears .

It noted that this fall could be an “early indication” that the backlog of possession cases had started to clear, but further data was needed to confirm this.

Possessions came to 980 in Q1 this year, which UK Finance said was well below typical levels.

It added that it expected possessions to rise to 7,700 as the backlog was cleared but this was still low compared to historic standards.

UK Finance said that as it took time for heavy arrears to build up and had longer processing times in the courts, it would not expect material umbers of new possession cases until the end of 2023 at the earliest.

Brokers say effect of cost of living still feeding through

John Phillips, national operations director at Just Mortgages, said the report confirmed a “stable start to the year” as application activity was similar to pre-Covid levels and feedback from brokers suggested that remortgaging remained strong.

He said: “However, what these figures don’t yet show is the recent shake-up in household budgets with interest rates, fuel, energy, and food costs all rising steeply and eating away at take home pay especially for lower-income families and typically first-time buyers.

“The chancellor has warned that interest rates are expected to rise to 2.5 per cent by the end of the year and with the cost of living rising rapidly, complying with affordability conditions will become increasingly difficult. Our brokers tell us that competition for houses remains very high and borrowers’ key concern is securing a mortgage offer and having the ability to proceed when they find the house they want.”

He said that in the latter half of the year, mortgage demand should remain strong as borrowers aim to secure a competitive purchase or remortgage deal before further rate rises. He said speed of offer could become more important than rates for some borrowers due to housing stock issues.

Emma Hollingworth, distribution director at MPowered Mortgages, said it was no surprise that house purchase borrowing dropped in Q1 given the high levels of activity seen in 2021.

She said: “While rising mortgage rates and the rising cost of living have had some impact on the appetite of those looking to buy or move home this year, consumer demand for housing remains strong. Unfortunately, the window of availability on mortgage deals is now shorter than it has ever been before, averaging just 21 days.”

She added that it was an “increasingly challenging market for homebuyers” and it was important that as an industry it supported customers. She noted that research done by the firm showed customers valued better service over rate, and more could done to improve the mortgage process.

The charity was set up in 1998 by Alick Smith, who at the time was the chairman of Spicerhaart, the property group which Just Mortgages is a part of. 

The charity supports 13 children’s hospices across the country which are near to the estate agency’s branch network. This allows staff to visit the sites and see the results of fundraising efforts. 

The charity was formerly known as the Fantasy Charity Fund and has raised over £1m since its foundation. It pays for children from the hospices to go on trips to Disneyland Paris with their families and any additional funds are used to provide equipment. 

The contribution from Just Mortgages will go towards the charity’s annual fundraising target of £75,000. 

John Phillips (pictured), national operations manager at Just Mortgages, said: “This is a wonderful charity and one that is close to our hearts at Just Mortgages and the wider Spicerhaart family.   

“Even in the midst of great pressure on individual finances, staff have once again shown an amazing commitment and dedication to fundraising and their individual generosity and generosity of spirit will make such a difference to the children supported by Magic Moments.   

He added: “It was a tremendous honour to be able to announce at our annual conference that we are going to be able to present a cheque of £20,000 to the charity. I am hugely proud of all our staff and also humbled by the wonderful work done by the team at Magic Moments.”

John Phillips, national operations director at Just Mortgages, said that the 0.25 per cent increase “came as no surprise to anyone” as the chancellor had warned rates could hit 2.5 per cent by the end of the year.

Phillips said that along with the cost of living crisis, the rate rise could mean pressure on household budgets will become the “greatest it has been for a decade.”

“While consumers have little control over their energy bills, they do have the opportunity to secure long term security in the form of a fixed rate mortgage. As a result, our network of mortgage advisers report that conversations with borrowers around longer-term fixed rates have never been higher,” he explained.

Colin Bell, co-founder and chief operating officer of Perenna, said that lenders had pulled 500 mortgage products, and average two-year fixed rates had reached a seven-year high.

He said: “This is clearly having a detrimental impact on consumers’ ability to get onto the property market. Flexible long-term fixed rate mortgages can provide a solution to the problem, allowing individuals to better manage their monthly outgoings, while avoiding any unnecessary stress caused by multiple interest rate rises.”

Figures from Moneyfacts show that the price of a five-year fixed rate mortgage is 3.17 per cent, whereas the price for a 10-year fixed rate is at 3.21 per cent.

Rachel Springall, finance expert at Moneyfacts, said: “Fixing for longer may be a logical choice for peace of mind with mortgage payments when other household costs are increasing. The differential between the average two-year and five-year fixed mortgage rate is much smaller than in previous years.

“However, aspiring homeowners may need to rethink whether they can even afford to step onto the property ladder due to rising costs and soaring house prices.”

Simon Webb, managing director of capital markets and finance at Livemore, said that there has “never been a better time” for borrowers to take out a longer-term fixed rate mortgage, as there would be further base rate and inflation increases this year.

“This will give people peace of mind that their monthly payments will remain the same for the long-term fixed period they choose,” he said.

Variable rate borrowers should opt for fixed rates

Brokers said that the base rate hike will obviously impact those on variable rates, and urge these customers to switch to a fixed rate.

Richard Pike, director at Phoebus Software said that the price increases could impact one in five borrowers, or around 800,000 mortgages.

Springall said that the difference between and average two-year fixed rate and a standard variable rate (SVR) is 1.75 per cent. Switching could save around £4,611 over two years based on a £200,000 mortgage over a 25-year term on a repayment basis.

She added that a rise of 0.25 per cent over the current SVR could add around £695 to total repayments over two years.

David Hollingworth, associate director for communications at L&C Mortgages, said: “Borrowers wallowing on lender standard variable rates have the most to gain from a review of their mortgage.

“Not only could they cut the cost of their mortgage and breathe some added flexibility into their monthly budget, but they could also elect to fix their rate to protect against the potential for further rate rises.”

Mark Harris, chief executive of SPF Private Clients, looks at the raise as demanding an extra £250 a year for every £100,000 on a variable rate remortgage, which adds up.

He said that those on variable rates may want to consider long-term fixed rates as they were “particularly competitively priced” but warned that there could be “heft early repayment charges (ERC)” if a borrower wanted to get out of a deal earlier.

‘Stampede’ of remortgage activity

Others said that the decision to increase the base rate to one per cent today could further heighten remortgage activity to a “stampede”.

Simon McCulloch, chief commercial and growth officer at Smoove, said: “Today’s rate hike could see the present rush to remortgage turn into a stampede. We are already seeing a surge in remortgaging.”

He explained that in the previous quarter, legal instructions on Smooves platform had gone up 67 per cent year-on-year and were up 15 per cent on the previous quarter.

“Expect frenzied refinancing and a very busy time for lawyers and mortgage brokers as the rate hiking cycle continues,” he warned.

Pike said that those looking to remortgage could find themselves having to accept a higher rate.

He added: “Brokers could be approaching their clients earlier and advising them to apply for a new fixed rate which will be valid for three to six months, depending on the lender.

“By locking in to a lower rate now rather than waiting to apply when their current deal comes to an end, borrowers should end up with a better deal.”

Harris added that activity in the remortgage market was “brisk” and some borrowers were considering paying the ERC to leave their existing deal early before prices rise even more.

“This can be worth doing but it is important to ensure any savings you make to your mortgage payments outweigh the costs involved. Rates can be booked up to six months before they are required and we are getting a lot of interest from motivated borrowers in doing this,” he said.

Approvals for house purchases were little changed at 70,691, from 70,968 in February. This remains above the 12-month pre-pandemic average up to February 2020 of 66,700.

Approvals for remortgaging, which only account for remortgaging with a different lender, were at their highest since the 52,100 approvals made in February 2020. March approvals rose marginally to 48,764, remaining below the 12-month pre-pandemic average of 49,500.

The ‘effective’ (actual) interest rate on newly drawn mortgages in March increased by 14 basis points to 1.73 per cent. The rate on the outstanding stock of mortgages rose two basis points to 2.04 per cent since February.

March saw the highest spike in net lending, as continually increasing house prices drove up mortgage borrowing to £7bn, up from £4.6bn in February.

By comparison, in Q1 2019, before Covid hit, the value of gross mortgage advances was around £63.3bn.

Intermediaries are more vital than ever

Brokers and lenders have reacted with confidence in the continued high demand and competition for housing stock. The cost of living crisis, inflation, and seller’s housing market presents an opportunity and a need for intermediary advice.

John Phillips, national operations director at Just Mortgages said: “With the Chancellor warning that there may be seven more base rate rises before the end of the year, taking it to 2.5 per cent, borrowers will be looking for advice on how to achieve long-term security in household expenses.

“Anecdotal feedback from our network of brokers reveals a push towards fixing rates for longer in the hope that the financial landscape will be less turbulent in a few years.”

Steve Seal, CEO at Bluestone Mortgages said the March stats are “reassuring” given current inflationary pressures.

“Affordability concerns are, and will continue to be, a key challenge for consumers. We expect to see a growing cohort of customers locked out of the mainstream mortgage market,” he said.

Dave Harris, CEO at More 2 Life, said: “You could say that the outlook for the mortgage market is safe as houses. Alongside enduring demand, the sector is strengthened by growing remortgage activity triggered by a surge in lenders offering lower rates of interest on five and 10-year products than on two-year loans.

“In light of the current economic backdrop, we might expect an uptick in borrowers fixing for longer and exploring later life lending, particularly as borrowers can take advantage of strong house price growth through releasing equity to address inflationary pressures elsewhere.”

Speaking to Mortgage Solutions, MAB’s chief executive Peter Brodnicki said that the rationale behind the acquisition was Fluent’s 14 years in centralised telephony experience with national lead sources, as well as its expertise across first charge, second charge, bridging and later life lending.

Other popular stories this week include brokers discussing the stress and damage of lender withdrawing and changing products at the 11th hour, as well as an interview with Mortgage Brain’s chief executive Zahid Bligrami on its Mortgage Engine acquisition.

MAB agrees to acquire Fluent Money Group

Brokers lament stress and damage caused by 11th hour product withdrawals – analysis

Bilgrami on the Mortgage Engine acquisition: ‘It’s about efficiencies, it’s not about driving distribution’

Just Mortgages to hire more than 800 brokers over next five years

Virgin Money pulls products; Nationwide adjusts rates – round-up

Landlords chasing high returns ditch standard rental properties for holiday let, brokers say

DIFF: Women need to be managed differently – The Mortgage Mum

Lasting power of attorneys – what brokers and their clients need to know

House price growth highest since 2004 at over 14 per cent – Nationwide

Trussle’s Miles Robinson joins digital broker Haysto

The brokerage said it wants to become one of the largest advisers in the UK, to that end, it is planning a major recruitment drive over the coming years.

The broker firm aims to hire 265 employed new build brokers taking the team total up to 425. There will also be a recruitment drive for a further 550 self-employed advisers.

The Just Wealth group is set to expand to 75 advisers.

JM is also expanding its academy to help bring talent into the industry. In 2021 65 graduates were trained up through the academies and have since gone on to provide advice to clients.

Simultaneously, more than 100 new brokers were recruited by Just Mortgages, with its expansion, Just Wealth, launched in January.

John Phillips, national operations director at Just Mortgages (pictured), said: “Over the past few years, despite turbulence, the property sector in the UK has proven to be exceptionally robust and the Just Mortgages proposition proved to be incredibly popular. The desire for properties remains strong and alongside this, there is a growing need for expert advice.

“While our plans are ambitious, we are extremely confident we will achieve them.

“Our industry leading academy is bringing in new talent to the sector and our proposition for both self-employed and employed brokers is continually improving. The recent restructure of the employed division and our new head of mortgages and protection in the self-employed division will help drive us towards our objectives.”

Frances Haque, Santander UK chief economist, said the panel’s decision was in line with market and other forecaster views. 

“Although the impact from Plan B restrictions will have had a negative effect on growth,” Haque said, “the short duration of the restrictions has meant that the MPC could have more confidence in the economy sustaining another rate rise immediately after the last increase.

“The question now is when any further hikes in rates will materialise which will remain heavily dependent on the path of inflation following the forecast.  The MPC has provided previous guidance that rate hikes will move in small increments, and they will be mindful of choking any recovery, particularly as growth forecasts are starting to be cut for 2022 as the rising cost of living starts to bite.”  

Richard Pike, Phoebus Software sales and marketing director, said the increase came as no surprise “given the way that inflation is spiraling upwards.”

A tight vote

However, the fact that the five-four vote “was so tight and those in the minority wanted to increase to 0.75 per cent is telling for the next meeting,” Pike added. 

“If the Bank starts to raise rates in increments of 0.5 per cent it will not take long for the increase to have a marked effect on mortgage interest rates,” he said.

With consumers facing increased living costs with inflation now at a 30-year high of 5.4 percent,  and sharply more expensive gas and electricity, “this could be a tough year for many”, Pike said. “There will be some households that are already finding it hard and lenders should be looking forward and ensure they are communicating with their borrowers before situations get too bad.”

Kevin Roberts, director of Legal and General Mortgage Club, said the increase was largely designed to curb inflation, but “that won’t be of much consolation to homeowners facing stretched finances, higher debt repayments and the rising cost of living. Speaking with a professional mortgage adviser is an essential next step for all homeowners – with rates set to rise further, doing so now could prove to be a wise move in limiting the financial impact.”

John Phillips, national operations director at the national broker firm Just Mortgages, took a more optimistic view.

“Although there may be some negativity around the decision to increase base rate, it will not dampen the desire to buy properties,” he said. “UK inflation leapt to 5.4 per cent in December – the highest level in nearly 30 years – so the decision by the Bank of England Monetary Policy Committee is hard to argue with.”

While mortgages will become slightly more expensive, Phillips said that competition between lenders should keep rates relatively low: “The increase is unlikely to put anyone off buying and it highlights the need for advice from brokers. Fixing for longer terms may become the norm as interest rates are anticipated to continue rising in the coming years.”

Pandemic outlook improved

Adrian Anderson, director of the property finance specialists Anderson Harris, mentioned the role of the pandemic in the BoE’s move. “The Covid outlook has improved however over the last month which has given the Bank of England confidence to raise rates once again and impose the first back-to-back rate hike since 2004,” he said.

“It’s not all bad news for borrowers. It’s interesting to see that demand for long-term residential fixed rates is driving lenders to offer more 10-year fixed rate products with Halifax launching a 1.68 per cent 10-year fixed rate for homebuyers with a 40 per cent deposit and Lloyds Banking Group an even more competitive rate of 1.66 per cent for borrowers with a 40 percent deposit. At a time when interest rates are rising it may be tempting to lock into this low rate for longer although borrowers need to be aware of the early repayment charges which lenders can levy if they are to redeem the mortgage before the 10 years is up.” 

Martijn van der Heijden, chief financial officer at Habito, said the increase was “bound to be a shock for homeowners who aren’t used to consecutive rises”.

“The bad news is that some city forecasters are expecting further back-to-back rate increases this year.”

Now with brokers able to connect with lenders and clients via a raft of different methods, it is fair to question the need for an office in the traditional sense of the word.

There has long been speculation about a new way of working. The pandemic forced these hypothetical scenarios to be accelerated into action.

We recently announced our first home-based broker. This was planned pre-pandemic, but fast-tracked due to it and they will offer everything that an office-based broker can.

Home-based brokers will still meet clients in person as building relationships with a client is much easier and more effective when face-to-face. These meetings may not take place in a traditional office.

This may be the direction some brokers choose to operate in the future. It’s easy to see the benefits to operating from home.

With few overheads, flexibility to meet clients wherever is convenient, a brilliant commute and all the benefits of working with a firm, it wouldn’t surprise me if this is an avenue more choose to explore.

Having the support of a team, manager and access to training is crucial for home-based brokers – they are supported when they need advice and a team to help them, with the flexibility to work when and where they want to.

Not for everyone

Certainly, this won’t be the perfect solution for everyone. There will still be plenty of brokers who prefer operating from the traditional office, where they can discuss the latest difficult case and raft of criteria being changed and what that means for their clients.

Others will prefer an estate agency as they enjoy the camaraderie and the additional face-to-face meetings with clients.

There are also those who, for whatever reason, be it young children, an overly-affectionate dog, or uncomfortable dining room table, won’t be able to function at 100 per cent while at home.

The key, wherever a broker operates, is that the client still receives the best advice possible; home working just gives brokers another option.

With the ability to function productively from almost anywhere on the planet there was always going to be a question around the need for a space to congregate every day.

As millennials dominate the workforce more and more, the shift away from an office in the centre of a city looks inevitable in the long term. The office is dead. Long live the home-based office.