UK Finance’s Household Finance Review for Quarter 2 has highlighted that lenders have maintained a cautious approach to underwriting in uncertain times with higher-loan to value (LTV) lending is still taking place and contracted less than the wider market.

House purchase lending plummeted in Q2 as the housing market was suspended due to lockdown, with homemover activity hit most severely.

The figures showed that mortgage refinancing fell but held up better than purchase activity, with a significant shift towards internal product transfers.

The end of June saw the first wave of mortgage payment deferrals come to an end, with fewer than one million customers now on a payment deferral compared with 1.8 million at the peak in early June.

The package of industry and government support in the initial months of lockdown has kept arrears to a minimum, with zero enforced possessions.

Eric Leenders, Managing Director, Personal Finance said “The economic and logistical impacts of lockdown in the second quarter of 2020, restricting the ability of households to buy or move house, brought about a radical reduction in activity in the mortgage market and shifted refinancing further towards internal product transfers.  These impacts are now receding and we are beginning to see some recovery in the housing market.”

“The decline in unsecured borrowing noted in Q1 accelerated as lockdown restrictions held back spending and with restrictions lifting, this is now increasing.”

“Many borrowers have been supported through the pandemic with temporary payment deferrals and – looking forward to the third quarter of 2020 – it is encouraging to note that a significant number of customers are now able to resume repayments.

“Although economic activity is beginning to recover, the outlook in the jobs market suggests that customers will still need support and lenders stand ready to help as required.”

John Phillips, National Operations Director at Just Mortgages, said “The data from  UK Finance today, coupled with the Bank of England report at the start of the week, will be a real boost for all of us in the mortgage sector as things start to gear up. It’s clear to everyone just how tough it has been throughout Q2 but we should be looking forward to a brighter Q3.”

“There are some real positives to take out of the Household Finance review, not least that the reopening of the housing market is leading some level of recovery, and that a significant number of customers have come off their mortgage holidays and are now resuming payments. And thanks to unprecedented government support, arrears have been kept to a minimum with zero enforced possessions so far.”

“What’s crucial now is that we continue to support customers between now and the end of the year as the job market continues to absorb the impact of the recession.”

Will North, Director of core credit at TransUnion in the UK, said “Recent figures from UK Finance reveal the full extent the COVID-19 pandemic has had on the housing market, with lockdown and social distancing measures bringing about a sharp decline in mortgage activity in Q2. Home mover numbers fell by 61% in April, compared to the previous year, whilst purchases for first-time buyers and buy-to-let were down 53% and 54% respectively for the same period. The emergency support measures put in place to support consumers, such as mortgage payment holidays, have had the desired effect and kept arrears to a minimum, but as deferrals come to an end there will be further challenges to navigate. It’s essential that finance providers understand their customers’ changing financial situations and can help them through this period.”

“Despite this, there are positive indications of a rebound for the property market in Q3, thanks in part to the stamp duty holiday implemented by Chancellor Rishi Sunak. As activity resumed in May, estate agents reportedly saw a dramatic surge in enquiries and it’s likely that many of those who were forced to delay transactions earlier in the year may now continue with their property purchases and take advantage of the incentives on offer and low interest rates.

“Credit card borrowing was also down in Q2, according to UK Finance, falling by 40% when compared to the previous year, and following the 12% year-on-year decrease reported for Q1. Whilst some sectors such as food retailing saw increases in sales, the closures of non-essential retailers, entertainment and hospitality businesses, along with travel restrictions, brought about a sharp drop in spending. ”

“The same research shows that credit card repayments have consistently been one of the areas of greatest concern for consumers, with our latest figures suggesting over a third (37%) of those financially impacted will be unable to pay their credit card bills. Lenders need to be engaging with customers and setting out appropriate payment plans now in order to minimise the risk of increasing arrears.”

Richard Pike, Phoebus Software Sales and Marketing director, said “Looking back we can now see the full impact that the lockdown had on the housing market.  There are no real surprises; it hit our sector hard and so too the finances of homeowners across the country.  With the recent rebound in the housing market it’s now time to look to the future.”

“The stamp duty holiday is obviously having the effect that the government intended, but other factors are at play.  Rising house prices mean rising deposits and a definite need for higher LTVs.  Although higher LTV lending is still taking place, deposits are being supported by family assistance much more and this is playing a huge role in getting people onto the property ladder.  This could mean a further increase in equity release lending in the coming months.”