New Bank of England data has shown the value of new mortgage commitments is down over 40% compared with the same period last year.
This comes as lenders recently pulled nearly one in 10 deals from the market due to concerns about further interest rate rises according to Moneyfacts, who say the average two-year-fixed-rate mortgage has increased from 5.49% to 5.82% since the beginning of June. Similarly, the average five-year deal has risen from 5.17% to 5.51% during the same period.
Amidst all this, a campaign has been launched by several mortgage brokers calling for lenders to sign a 24-hour Product Withdrawal Pledge. This, they say, would give more notice of withdrawals and make it easier for borrowers to secure a mortgage amidst the current turbulence.
The rising cost of a mortgage
With the cost of mortgage repayments having soared since interest rates began to rise last year, the impact on homeowners’ pockets is stark.
Indeed, analysis conducted by the Labour Party – who have described the rising costs as a “Tory mortgage penalty” – found the average homeowner is spending an extra £150 a week since the mini-Budget, or over £7,000 a year.
Overall, this means homeowners throughout the UK will have to spend nearly an extra £9 billion in interest over 2023 and 2024, according to the Centre for Economics and Business Research, with 2.5 million coming to the end of fixed-rate deals during the period while a further one million are on variable rate deals.
The wider lending picture
Data released by the Bank of England on Tuesday revealed the value of new mortgage commitments in 2023 Q1 was 16.1% less than the previous quarter and 40.7% less than a year earlier at £48.9 billion. This was also the lowest observed since 2020 Q2.
Similarly, the value of gross mortgage advances in 2023 Q1 was £58.8 billion, which was £22.9 billion lower than the previous quarter, and 23.6% lower than in 2022 Q1. This was also the lowest observed since 2020 Q2.
What’s more, the value of outstanding balances with arrears increased by 9.5% over the quarter and 12.5% over the year, to £14.9 billion in 2023 Q1, and now accounts for 0.89% of outstanding mortgage balances. The outstanding value of all mortgages was £1,675.4 billion – up 2.5% in a year, but down from the previous quarter. It’s the first quarterly drop since Q2 2017.
Source: Bank of England
Industry reaction
Sarah Coles, head of personal finance, Hargreaves Lansdown, said:
“Mortgage borrowing fell off a cliff at the start of this year – down almost a quarter from a year earlier. Plenty of buyers who completed sales at this stage were likely to have been hunting for a mortgage at the worst possible time – when rates shot up in the aftermath of the mini budget. And for every determined buyer who saw it through, there will have been more who were scared back into the rental market.
Mortgage rates were falling back in early 2023, but this didn’t inspire a wave of approvals. In fact they were down more than 40% in a year. Mortgage rates remained significantly higher than before the scare in the autumn, and it put a real dent in buyer confidence. The spike of the past few weeks won’t have helped either, so we can expect to see more mortgage misery in the next set of figures.”
Coles added that the rising number of those in arrears is a “worrying development”:
“Even for those whose repayments haven’t changed, the pressure of the rising cost of living may be enough to make the mortgage an impossible stretch.”
Karen Noye, mortgage expert at Quilter, added that the figures “paint a worrying picture”:
“Sadly, the picture is likely only set to get worse in the short term as once again the mortgage market has gone through a very turbulent period over the last week with rates getting ever more expensive piling even more pressure on already stretched budgets.
The withdrawal of mortgage products and increasing rates by lenders over the past few weeks have been driven by a number of factors. The prevailing reason for this shift is the higher-than-expected inflation rate of 8.7% in April fuelling predictions that the Bank of England will raise interest rates to a higher level than previously thought. This fear has made some of the big name lenders cautious and prompted them to withdraw products and then raise their rates to safeguard against future losses.”
