Strong mortgage application figures in Q4 2023 and Q1 2024 has seen an uplift in mortgage lending into the second half of 2024 but a dip in application volumes could see lending dip again toward the end of 2024; with a knock on impact on transactions in 2025.
UK Finance’s Household Finance Review for Quarter 2 2024 shows strong mortgage applications in the latter part of 2023 have translated into strong lending figures with commentators positive about the strength of the market into the remainder of 2024.
But a dip in application in Q2 to levels below the same quarter in 2023 suggests lending may begin to tail off toward the end of the year. And overall lending figures remain below ‘normal levels’ according to UK Finance with activity around 16 per cent down on 2022.
UK Finance paint a pessimistic picture for transaction volumes with high prices, high interest rates (compared with the low levels for over a decade since the Financial Crisis) and cost-of-living pressures still having a major impact on affordability. Falling mortgage rates have been ‘modest’ and with expectations ‘for perhaps two or three quarter-point cuts in Bank Rate through the second half of the year (including the cut already made in August)’, the body says
“there looks to be some way to go before conditions ease enough to bring the equation back into line for the significant numbers who look to have been affordability-constrained through the last year or so,”
a point it says is reflected in the subdued number of mortgage applications. Rightmove’s regular weekly mortgage tracker suggests interest rates are coming down with the average 5-year fixed mortgage now a full 1% down on 12 months ago at 4.68%, from 5.68%. The average 2-year fixed mortgage rate is now 5.04%, down from 6.27% a year ago.
On the remortgage front the impact of ‘rate shock’ on customers coming to the end of their fixed rate deals appears to have passed is peak says UK Finance. Rightmove’s figures show a reduction of near 1.5% on 60% LTV 5-year fixed mortgages, down to 3.97%, from 5.33% a year ago. But UK Finance says the length of mortgage terms continues to extend with more than one in five of all first time buyers, one in ten home movers and one in twenty of those remortgaging took out loans at terms of 36 to 40 years in Q2 2024. Those remortgaging face rates around 3% higher than their previous but the report suggests the Mortgage Market Review and subsequent stress testing required by the Financial Conduct Authority has ‘worked exactly as intended. In the absence of further, unexpected, increases in market rates, borrowers have largely been able to weather the storm of a significant rate rise scenario with their affordability intact.’
The Household Finance Review – Q2 2024 can be reviewed in full here.
