UK mortgage lending drops as property market cools

·3 min read
UK mortgage lending drops as property market cools
Brits borrowed £73.4bn in mortgages between July and September. Photo: Getty

The mortgage market slowed in the third quarter of the year between July and September.

The Bank of England’s (BoE) latest data showed Brits borrowed £73.4bn ($97bn) in mortgages between July and September — down £15.6bn from the previous quarter, when the stamp duty holiday was more generous, but up 17.4% from a year earlier.

It also showed that the value of new mortgage commitments — lending agreed to be advanced in the coming months — was 8.2% less than the previous quarter but broadly unchanged from a year earlier, at £78.9bn.

“The temperature dropped in the mortgage market this autumn, after the stamp duty holiday became decidedly less generous,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

Mortgages agreed for the winter fell but they were dropping back from unusually high levels, which kicked in during the heat of the stamp duty holiday this summer, so a drop was always expected, said Coles.

She added that the rise of remortgaging as a percentage of all mortgages, for the first time since the first three months of the pandemic, is in part "simply a function of the drop in the number of mortgages for new homes."

But, during this period, as inflation rose above its 2% target, and there wasn't rampant interest rate speculation until a little later, there were early stirrings of unease, which may have convinced homeowners that now was the time to lock in a low rate.

Read more: UK's £3tn property windfall 'unequal, unearned and untaxed'

"We can expect the mortgage market to grow colder this winter, and demand to drop further, as a result of the combination of the final end date for the stamp duty holiday, and the usual seasonal slowdown. However, it’s not going to freeze over."

Some 22.9% of mortgages were remortgages, up from 16.5% the previous quarter. This is the first rise since the first three months of the pandemic.

Coles expects remortgage numbers to climb, and mortgages for purchases to hold up reasonably well. Despite some recent rises, mortgage rates are still very low, and with lockdown savings burning a hole in some people’s pockets, there are still compelling reasons to buy.

She expects house prices to remain robust too. A Bank of England study out earlier this week revealed that just under half of house price rises during the pandemic was driven by the race for space — including the demand for bigger properties, homes outside London, and the premium on houses rather than flats of the same size.

Meanwhile, the BoE has announced plans to ease mortgage lending rules.

The central bank wants to remove a requirement that forces borrowers to be able to afford a three-percentage-point rise in interest rates before they can be approved for a home loan.

“Many lenders will currently only allow buyers to borrow approximately 4.5 times their salary. But, this could be extended to six to seven times their yearly earnings,” said Miles Robinson, head of mortgages at online mortgage broker Trussle.

Read more: UK mortgage lending surges to £316bn

He explained the rules were introduced in the wake of the financial crash to reduce the risk of homeowners accidentally taking on debt that could leave them vulnerable and are in place to protect homeowners from any volatility that can come from interest rate rises.

“However, soaring house prices mean that younger buyers on average have to save for 10 years to secure the large deposits that are typically needed to access the housing market. As such, relaxing the rules just slightly could enable hundreds of thousands of first time buyers to own their own home much more quickly."

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