BoE reports that gross mortgage advances and agreed loans are at their lowest levels since 2020.
According to data from the central bank, the value of gross mortgage advances and new lending in Q1 this year decreased to levels not seen since Q2 2020.
The value of gross mortgage advances in Q1 was £58.8 billion, according to data gathered by the Bank of England (BoE) and the Financial Conduct Authority (FCA) for the Mortgage Lenders and Administrators Statistics.
This was a £22.9 billion decrease from the previous quarter and a decrease of 23.6% from the same time last year.
The amount of new agreed lending totaled £48.9 billion, a decrease of 16.1% from the previous quarter and 40.7% yearly.
The total outstanding value of all home mortgages at the end of Q1 was £1.67 trillion, which was 2.7% higher than a year earlier but somewhat lower than the previous quarter.
Rise in defaults
In Q1, which was 0.2% higher than Q4 2022, 93.9% of gross mortgage advances had interest rates that were less than 2% above the base rate. This was 7.7% more than the previous year and the largest percentage of mortgages priced at this level since Q2 2008.
In comparison to the previous quarter, the percentage of gross mortgage advances priced 2% to 3% above the base rate decreased from 3.8 to 3.4 while the percentage of loans priced 3% or more than the base rate increased by 0.2% to 2.7%.
From Q4 2022 to Q1 2023, the amount of mortgages in arrears increased by 9.5%, or 12.5% per year, to £14.9 billion. This, according to BoE, was the highest since Q1 2021.
Loans in default increased marginally from 0.81 percent in the fourth quarter to 0.89 percent in the first quarter.
Low LTI lending occurs.
Loans with high loan to income (LTI) ratios were less frequently issued by lenders in the first quarter, when 43.7% of mortgages were issued, a decrease of 5.6% from the previous quarter. This was the lowest since Q2 2020 and was 6% lower than the previous year.
In Q1, 9.1% of total mortgage loans went to single-income borrowers with LTI ratios of four or higher, a 1.5% decline from the previous quarter. 34.6 percent of new credit went to borrowers with joint income and an LTI of three or above, a decrease of 4.2 percent from Q4 2022.
According to the data, the proportion of mortgages financed at 90% loan to value (LTV) or greater decreased by 1.1% quarterly to 4% in Q1. This was the same as the previous year.
Within this, 0.2% of mortgages—roughly the same percentage as a year ago—were advanced with LTVs of exceeding 95%.
Mortgage advances above a 75% LTV decreased by 4.5% quarter over quarter to 32.5%. According to the central bank, this was a 3% decline from the prior year and the lowest share since Q1 2016.
Fall in buy-to-let mortgages
Since Q4 2011, the proportion of gross mortgage advances for buy-to-let has decreased to its lowest level. It made up 9.8% of new loans in the first quarter, a 3.6% decrease from the same time last year.
Owner-occupied mortgages accounted for 90.2% of all advances.
Remortgages accounted for 34.8% of the mortgages advanced to owner-occupiers, an increase of 5.8% annually. The share of financing devoted to house purchase advances fell to 50.1% from 50.2% in the prior quarter, the lowest level since Q2 2020.
The amount of money lent to first-time purchasers increased by 1.3% to account for 22.7% of all mortgages offered for home purchases. This was 1.5% less than in the fourth quarter of 2020.
The BoE said that the share of further advances and other mortgages—including lifetime mortgages—as a percentage of gross advances in Q1 was 5.3%, the lowest since records have been kept.
To 27.4%, the share of mortgages given to home movers decreased by 1.9% annually. This was the lowest since Q2 2020 and was 3.8% lower than the previous quarter.
‘Worrying image’ for the market
The figures, according to Karen Noye, a mortgage expert at Quilter, revealed a “worrying picture” with more people having difficulty making their mortgage payments and fewer people taking out mortgages altogether.
She added that this would have an effect on home values, saying “If repossessions start to increase and the market becomes flooded during a period where demand is lacking, it will have a damaging impact on house prices.”
Noye predicted that the situation will worsen in the near future because the mortgage market was once again experiencing turbulence.
“Prior to these latest changes, the industry appeared to be stable since the rate hike in November of last year. With interest rates expected to peak at roughly 5%, the economic future appeared more predictable, which contributed to this stability, according to Noye.
Mortgage borrowing may decrease even more, according to Sarah Coles, head of personal finance at Hargreaves Lansdown, as approvals for the upcoming months appear to be declining.
In early 2023, Coles said, “Mortgage rates were declining, but this didn’t spark a rush of approvals. In fact, they had a year-over-year decline of more than 40%. Mortgage rates remained much higher than they were prior to the autumn scare, which had a significant negative impact on buyer confidence. We may anticipate that the next set of statistics will show even greater mortgage agony because of the recent rise, which won’t have helped either.
Even while their rates may not have gone up, she called the surge in homeowners defaulting on their mortgages a “worrying development” because it suggested that people may be struggling to make ends meet despite greater living expenses.