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Mortgage advances and new lending fall to lowest levels since 2020

Nick Cheek
Written By:
Nick Cheek

New mortgage lending in the first three months of 2023 fell to lows not seen since Q2 2020, figures from the central bank have shown.

Data compiled by the Bank of England (BoE) and the Financial Conduct Authority (FCA) for the Mortgage Lenders and Administrators Statistics revealed that the value of gross mortgage advances in Q1 came to £58.8bn. 

This was a £22.9bbn drop on the previous quarter and 23.6% ower than the same period last year. 

The value of new agreed lending came to £48.9bn, which was down by 16.1% on the previous quarter and 40.7% annually. 

By the end of Q1, the outstanding value of all residential mortgages was £1.67 trn, which was 2.7 per cent up on a year ago but a slight fall on the previous quarter. 

Rise in arrears 

The value of mortgages in arrears rose by 9.5% from Q4 2022 to Q1 2023, and 12.5% annually to £14.9bn. BoE said this was the highest since Q1 2021. 

The proportion of loans in arrears rose slightly from 0.81% in Q4 to 0.89% in Q1. 

High LTI lending drops 

Lenders issued fewer loans at high loan to income (LTI) ratios in Q1, as this fell by 5.6% on the quarter to 43.7% of mortgages during the period. This was 6% lower than the year before and the lowest seen since Q2 2020. 

The data showed that the share of mortgages lent at 90% loan to value (LTV) or higher fell by 1.1% quarterly to 4% in Q1. This was flat on the year before.  

Mortgage advances exceeding 75% LTV fell by 4.5% quarter-on-quarter to 32.5%. The central bank said this was a 3% drop on the year before and the lowest share seen since Q1 2016. 

Buy-to-let mortgage decline 

The share of gross mortgage advances for buy-to-let dropped to its lowest since Q4 2011. It accounted for 9.8% of new lending in Q1, which was a 3.6%  decline on the same period last year. 

First-time buyers rise

Within the mortgages provided for house purchase, lending to first-time buyers rose by 1.3% to make up 22.7% of lending. This was 1.5 per cent lower than in Q4 2020. 

 A ‘worrying picture’ for the market 

Karen Noye, mortgage expert at Quilter, said the data painted a “worrying picture” with more people struggling to pay off their mortgage and fewer people taking out mortgages at all.  

She said the impact of this would be felt in house prices, adding: “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 said the picture would get worse in the short term as the mortgage market was once again going through a turbulent period.  

“Before these recent developments, the sector was seemingly in a stable state since the spike in rates around November last year. This stability was likely due to the economic outlook looking more predictable with interest rates set to peak at around five per cent,” Noye added. 

Sarah Coles, head of personal finance at Hargreaves Lansdown, said there was a chance that mortgage borrowing would fall even further as approvals for the coming months appeared to decline. 

Coles added: “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.” 

She said the rise in people falling behind on mortgage payments was a “worrying development” as even if their rates had not increased, they could still be struggling due to the higher cost of living.