New data released by UK Finance has revealed that lending to homemovers has fallen to the lowest level since 2009 excluding the period immediately after the first Covid-19 lockdown.
Lending to first-time buyers (FTB) has also fallen to the lowest level since 2015, also excluding the aforementioned period.
This comes as households have faced more than a year of high inflation and rising interest rates. The impact of both is becoming more apparent in UK Finance’s data, with the numbers laid bare in their Household Finance Review for Q1 2023.
The report revealed the proportion of FTBs taking out a mortgage with a term of over 35 years hit a record high in March at 19%. The number of homemovers taking out similar mortgages hit 8%.
“This decline in activity is in line with our Market Forecast data as cost-of-living and interest rate increases tighten affordability limits, bearing down on effective demand for mortgage credit,” said UK Finance.
They did, however, add that “as yet, there is no sign that the customers coming to the end of their fixed rate deals are seeing their refinancing options limited by the tighter affordability constraints from these cost pressures when simply moving to a new deal”, with the caveat that these pressures “may now be tempering the willingness and ability to borrow more against their home”.
Elsewhere in the report it was revealed mortgage arrears rose in the first quarter, although this is “from a very low base and in line with our expectations”, said UK Finance. “However, any increase in arrears, even a modest one from a low base, is of concern and the industry is focused on helping customers navigate periods of increased financial stress.”
UK Finance said around 80% of all arrears customers are on variable rates. “Given almost all new lending is on fixed rates, the vast majority of arrears cases are much older mortgages.”
Eric Leenders, Managing Director of Personal Finance at UK Finance, said:
“Cost of living pressures and higher interest rates weighed on households in Q1. We saw the first year-on-year drop in savings levels in 15 years as people dipped into their savings pots to pay their bills and support usual spending.
Meanwhile, mortgage lending dropped significantly at the start of the year, although some borrowers are still stretching affordability with longer term mortgages. More recently, uncertainty around the inflation outlook has led to another bout of elevated volatility in swap markets, leading to some repricing by lenders. While this persists, we expect near term mortgage market activity to remain relatively fragile. Borrowers coming to the end of their fixed-rate deal are encouraged to seek advice from a whole-of-market broker.”