UK Finance    – Mortgage Strategy

Annual lending to homemovers lifted 15%, while loans to first-time buyers grew 19% — although longer-term offers remain high, second-quarter data from UK Finance shows.
“The rise was driven by the spike in mortgage applications we saw late last year and early this year,” says the banking trade body’s latest Household Finance Review.
It adds: “However, lending is still around 16% lower than in 2022 and we’ve seen mortgage applications tail off as house prices recovered.
“This suggests that growth may not continue through to the end of the year.”
The review also notes the trend towards lending over longer terms among younger borrowers.
It points out: “The trend of borrowing at longer terms remains higher than in the past.
“More than one in five FTBs took out loans with terms of 36 to 40 years during the second quarter.
“However, our analysis of monthly payments versus incomes suggests that borrowers are increasingly using term stretch to get the mortgage size they need, rather than to manage their monthly payments.”
It adds that, “affordability challenges continue to affect refinancing”.
The study says that, “external refinancing loans in the second quarter fell 12% compared with a year earlier to 408,000. Internal product transfers, where an affordability assessment is not needed, accounted for 82% of second quarter refinancing”.
The body says that “increases in payments for borrowers reaching the end of their fixed-rate deals appear to have peaked at the end of 2023.”
This stems back to the spike in mortgage rates caused by the 2022 mini-Budget by former Prime Minister Liz Truss and Chancellor Kwasi Kwarteng.
The review adds: “While customers’ new rates were typically three percentage points higher, they were still paying one percentage point below what their lender had calculated they could afford.”
The study adds that mortgage arrears cases stabilised in the second quarter, falling very slightly from 109,900 at the end of the first quarter to 109,700.
Early arrears cases also fell, suggesting total arrears may fall again in the third quarter.
There were 1,620 mortgage repossessions in the second quarter, up 34% from the 1,210 in the second quarter of 2023, “but still substantially below pre-pandemic levels”.
The study adds: “The rise is due to the courts continuing to work through their backlog of historic long-term cases from before the pandemic.”
SPF Private Clients chief executive Mark Harris says: “The looming general election and high interest rates put a dampener on activity in the second quarter of the year, as buyers and sellers sat on their hands and avoided making big financial decisions.
“That said, the increase in mortgage applications at the end of 2023 and beginning of 2024 on the back of lower mortgage pricing, did feed through into annual growth in lending.
“However, as mortgage rates rose in the second part of the first quarter and into the second quarter, applications tailed off, with UK Finance forecasting weaker completion numbers in the latter part of the year.
Harris points out: “Current lower mortgage pricing, with a number of lenders launching sub-4% five-year fixes, will take a while to feed through into completion numbers.
“Affordability remains an issue, with a noticeable increase in borrowers opting for longer mortgage terms in order to keep monthly costs down.
“The worst of any rate shock may be behind us with the Bank of England cutting interest rates in August, with the expectation that there are more reductions to follow, but borrowers will still have to get used to paying more for their mortgages.”
UK Finance managing director of personal finance Eric Leenders adds: “While it’s encouraging that cost-of-living pressures easing meant some households were in a slightly better place financially in the second quarter this year, it’s too early to say that the worst of the challenges facing households have passed.”