Mortgage approvals fall

14th June 2023

Latest Bank of England data  £48.9 billion of new mortgages were approved for the coming months down 16.1% in a quarter, 40.7% in a year and the lowest since Q2 2020.The figures showed that £58.8 billion in mortgages was borrowed in the first three months of 2023 down 23.6% in a year and the lowest since Q2 2020.

The data also showed that 0.89% of outstanding balances (£14.9 billion) were in arrears up 9.5% in the quarter and 12.5% in a year. The outstanding value of all mortgages was £1,675.4 billion –up 2.5% in a year, but down from the previous quarter. It’s the first quarterly drop since Q2 2017

Commenting on the figures Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Mortgage borrowing plunged in the first three months of 2023, as higher rates took their toll on our enthusiasm for property. There’s every sign they will sink even lower, as approvals for the coming months dropped too. And rate hikes in recent weeks risk sending them to rock bottom. Meanwhile, arrears have started to climb.”

“Mortgage borrowing fell off a cliff at the start of this year – down almost a quarter from a year earlier. Plenty of buyers who completed sales at this stage were likely to have been hunting for a mortgage at the worst possible time – when rates shot up in the aftermath of the mini budget. And for every determined buyer who saw it through, there will have been more who were scared back into the rental market.”

“Mortgage rates were falling back in early 2023, but this didn’t inspire a wave of approvals. In fact they were down more than 40% in a year. Mortgage rates remained significantly higher than before the scare in the autumn, and it put a real dent in buyer confidence. The spike of the past few weeks won’t have helped either, so we can expect to see more mortgage misery in the next set of figures.”

“The rise in people falling behind on mortgage payments is a worrying development. It was always a concern as more people remortgaged from fixed rates of less than 2% and faced impossible hikes in their monthly mortgage payments. Even for those whose repayments haven’t changed, the pressure of the rising cost of living may be enough to make the mortgage an impossible stretch. The ONS has been charting a gradual rise in people who are behind on rent or mortgage payments. This has risen to 4%, and to 6% among people in their 30s and 40s. Some 44% of people now say it’s difficult to cover this cost.”

Adam Oldfield, Chief Revenue Officer at Phoebus Software, said “The figures from the Bank of England today confirm the downward trend in mortgage lending. Understandable, when you consider the turmoil in the final quarter of 2022. Q2 is likely to show the trend turning upward but, unfortunately, that may well be short lived as the Bank continues to struggle to bring inflation under control. We only have just over a week to wait to find out what the MPC will decide regarding interest rates, but in truth we are all just waiting to see how big the increase is, rather than whether there will be one. The coming months are going to be testing for the housing market, which bears the brunt of these rate rises.”

“The fact that the number of mortgages slipping into arrears is increasing is worrying but not unexpected. With the ONS reporting that 1.4 million UK households will see their fixed rate deals come to an end in 2023, this is not a short-term worry. This prospect has the potential to stall the market further and house prices could start to tumble. Brokers and lenders are undoubtedly facing a challenging time, but where there is challenge there is usually opportunity. Identifying those opportunities whilst looking after the more exposed borrowers will be the most important thing.”

Separate Bank of England data found that about 1.5 million borrowers are facing a leap in repayments when they come off their current deal, with many having taken out loans when rates were at historic lows of about 1%. Following 12 consecutive increases in the Bank of England base rate, the cost of deals has soared, with a typical two-year fixed-rate deal for someone with a 40% deposit costing about 4.74%. To confront the prospect of rising interest, many homeowners have opted to overpay huge amounts while still on a low rate.