The UK Finance Household Finance Review revealed that in the first three months of this year, there was a 62% annual increase in first-time buyer completions, while homemover activity was up by 74%.
Respectively, this represented 107,000 and 94,450 completions during the period.
The trade body said there were “notable peaks” in March, the last month before the stamp duty threshold fell from £250,000 to £125,000 for all buyers and £425,000 to £300,000 for first-time buyers.
In March, 51,180 first-time buyers completed on a mortgage, up from 24,070 last year, while the figure for homemovers jumped from 19,270 to 47,360. In percentage terms, this represented increases of 110% and 140% respectively.
UK Finance suggested this activity has not been sustained, however, adding that forward-looking data indicated a “significant drop-off” in early Q2. Despite this, the trade association said there were still signs of year-on-year growth in applications, pointing to “residual momentum” in the market.
Click here to view our Sponsored Content Hub
“Even though April is likely to show a compensating contraction from those brought-forward purchases, it is possible lending will return to modest growth later in the quarter,” it added.
Affordability most stretched since the financial crisis
UK Finance said the trend of people taking out longer mortgage terms to lower monthly payments had not fallen despite the decline in interest rates.
It continued on to say that even with lower initial payments, this was taking up a larger share of borrowers’ income than at any time since the global financial crisis.
UK Finance said this was due to rising house prices offsetting the lower interest rates, and the rush to beat the stamp duty deadline added to this.
The trade association referred to its recent first-time buyer report, which showed that the previous stamp duty holiday in 2022 favoured first-time buyers who had financial assistance from family for the deposit. Based on early data, UK Finance said the most recent stamp duty holiday triggered another, albeit smaller, shift towards buyers with family help.
It said purchase activity would rise this year, but borrowers were “more stretched now than they have been since the global financial crisis”.
Drop in refinance activity but rebound expected
The data showed that refinance activity weakened in Q1, falling by 13% year-on-year.
The share of product transfer business was still higher than historical averages.
Including Q1, around 1.6 million fixed rate deals are set to mature this year compared to 1.4 million last year, so UK Finance said growth was expected this year. It also predicted a recovery in external remortgages due to lower interest rates and improved affordability.
The trade association said that if the Financial Conduct Authority’s (FCA’s) proposals to make open market remortgage easier happen, this would reverse the shift towards product transfers further.
Mortgage arrears continue to fall
The number of mortgage accounts in arrears continued to fall, continuing a trend seen since the peak of arrears in Q1 last year, when this hit 109,930 cases.
In Q1 this year, the number of mortgages in arrears of over 2.5% of the outstanding balance dropped by 3% to 101,990.
UK Finance said the fall in arrears was initially from those in lighter arrears, while those further behind in payments worsened. More recently, however, the more serious cases have started to decrease.
The report said arrears numbers should continue to fall this year, including those in the heaviest bands.
Possessions rose, totalling 2,030 in Q1. UK Finance said while this was a 68% jump on last year, it was from very low levels.
It said most possessions related to mortgages taken out before 2010 and many of these borrowers had been in arrears for a while. Others were managing on ultra-low interest rates but could not keep up once rates began to rise.
UK Finance said possessions would “rise modestly” this year, but would remain around pre-Covid levels.
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Mortgage activity heaves in Q1 due to stamp duty deadline – UK Finance
