Mortgage lending has recovered in the first quarter of 2024, but is still down on year-on-year (YOY), UK Finance figures have revealed.
According to UK Finance’s latest figures, borrowing for house purchase in Q1 is down compared to the same period last year, but the rate of decline has “fallen significantly” compared to double-digit contractions in mortgage lending in 2023.
The trade body said that there had been an uptick in mortgage applications in the last quarter of last year, and this continued to January, which had suggested that there could be a market recovery in early 2024.
The report found that the downward pricing trend of late 2023 “stalled early” during the period, and the growth in application volumes has also “moderated”, becoming negative YOY in March.
“This suggests that, whilst we will likely see some growth in completions in the second quarter, recovery may prove to be relatively modest and short-lived,” UK Finance said.
The trade body said that it is possible the “surge in applications” due to downward pricing could have come from borrowers who were already credit-worthy and were waiting for rates to drop.
“Whilst not necessarily affordability-constrained, they may have been nonetheless deterred by the prospect of facing much higher monthly mortgage payments if they bought during the peak in pricing, and so were waiting for some easing in rates in order to get a better deal.
“Now that this easing looks to have halted, the stimulus to demand has also abated, with many would-be homebuyers still facing real difficulties in meeting affordability requirements,” the report stated.
UK Finance said that the “early stimulus to mortgage demand” earlier this year does not signal a change from its forecasts.
It noted that there would be “continuing, significant affordability constraints holding back activity through the year”.
On the refinance side, in Q1 there was a 9% YOY increase in product transfer volumes, and external remortgaging fell by 21%.
“As affordability pressures persist through the year, we expect the product transfer market to remain buoyant and external remortgaging to slowly regain traction only as affordability pressures begin to ease,” UK Finance said.
Longer mortgage term trend continues
UK Finance said that, while the proportion of borrowing over longer terms had “eased slightly” in the first quarter, it was “far higher than we have seen in the past”.
The report stated that this was particularly the case for first-time buyers, but was also the case for all types of borrowers.
It said that longer-term borrowing “is not necessarily an issue in and of itself” as first-time buyers will redeem their mortgage before it gets to the end of the term, but for homemover and remortgage customers, this could lead to “entrenched affordability issues”.
“Rather than just stretching terms as a means of improving affordability in order to enter the housing market, more customers are needing to do this in subsequent mortgage transactions, further on in their homeownership journeys and their working lives.
“This longer-term borrowing all takes place within FCA responsible lending rules, including those cases where the term stretches into retirement. However, the longer a customer needs to make mortgage payments, the less free income they may have over this period for other important considerations, not least contributions into their pensions,” it explained.
UK Finance said longer-term borrowing could have “wider societal implications”, but this would “not come home to roost until some years down the track”.
Arrears and possessions rise in Q1
UK Finance said that the number of mortgage customers in arrears rose in the first quarter, but the “rate of growth was more modest”.
The report stated that, at the end of Q1, there were 110,000 mortgages in arrears over 2.5% of the outstanding balance, a rise of 3% compared to the prior quarter.
UK Finance said that the rise in arrears had been mitigated by the “continuing benign labour market” and “underwriting standards”.
The firm said that there was a smaller number of mortgagors entering early arrears, but there was an increase in cases progressing from early arrears to “more entrenched arrears positions”.
“This suggests that, whilst further increases in the total numbers of mortgage customers in arrears may be limited, more of those who are already in arrears are not curing quickly, and instead continue to build up higher levels of arrears,” it explained.
UK Finance said it expected arrears to continue to grow throughout the year, but at a slower rate than 2023 as wages, prices and interest rates “slowly normalise”.
It warned that there has been an increase in unemployment, and if this escalated, there could be more people falling behind on their mortgage payments.
The trade body urged those in difficulty to contact their lender at the earliest opportunity and the Mortgage Charter’s and lenders’ “extensive tailored forbearance programmes” could help customers.
On the possessions side, there were 1,470 possessions in the first quarter, an increase from 1,140 in Q4 2023.
UK Finance said that around three-quarters of homeowner mortgage possessions taken through last year were for mortgages taken out before 2014, and most were taken out in the years preceding the financial crisis.
“As we move forward through this year, we expect possessions to rise only modestly and remain well below previous norms. Whilst responsible lending rules cannot prevent customers experiencing life events [that] impact their ability to pay, the combination of these responsible lending policies and continuing strong employment figures mean relatively few will fall into arrears and, helped by extensive lender forbearance, the vast majority of those who do will cure back to performing status over time,” it said.
Anna is currently the deputy editor for Mortgage Solutions and editor for Specialist Lending Solutions. She has worked as a journalist since 2019, having secured her Gold Standard NCTJ diploma from News Associates in a fast-track six-month course.
She started her career as a report at specialist publication The Insurance Insider covering a wide range of areas before joining Mortgage Solutions and Specialist Lending Solutions in 2021.
In her role, she helps put together and structure the news agenda for the day and writes up press releases, reports, interviews, analyses and exclusives across both titles. She also commissions blogs for Specialist Lending Solutions and hosts online masterclasses and in-person events across the business.
She has been shortlisted for three journalism awards, which include BIBA Journalist and Media Awards Scoop of Year Award in 2020, Headline Money Mortgage Journalist of the Year Award (B2B) in 2022 and 2023.
Prior to being a journalist, Anna worked in ecommerce across Snow + Rock, Cycle Surgery and Runners Need websites, and before that worked at specialist financial PR firm Rostrum.
In her spare time, Anna enjoys reading, seeing live music, and cooking for friends and family. When she gets a chance, she also enjoys hiking, skiing and indoor rock climbing.
