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Mortgage agreements fall to lowest level in a decade

Paloma Kubiak
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Paloma Kubiak

The value of new mortgage commitments dropped to £34.4bn in Q2 2020, a 50% drop on the £67.3bn lent in the previous quarter, figures from the Bank of England and Financial Conduct Authority (FCA) show.

This was the lowest level of new commitments since the first quarter of 2010 when the value reached £33.7bn. 

According to the Mortgage Lenders and Administrators statistics, this was also a 53% decline on the £73.4bn agreed during the same period last year. 

The value of gross mortgage advances also fell during the quarter to £44.1bn, 33% lower than the £66.1bn value last year. This is also at its lowest level since Q2 2013, when it was valued at £41.6bn. 

High LTV lending stable 

The share of mortgage lending exceeding 75% loan to value (LTV) saw a slight dip to 36.5% during a quarter, a decline of 3.2% compared to last year. 

Despite recent challenges around mortgages at higher LTV tiers, the share of lending above 90% LTV decreased by just 0.4% to 4.9%Lending above 95% LTV remained flat at 0.3%. 

Buy to let resilience 

The share of lending for buy to let purposes saw a 1.2% yearly rise to 14.4%, while owner occupiers accounted for 85.6% of advances. 

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said the buy to let sector showed itself to be resilient in the midst of a lockdown. 

“It proves that investors were still keen to look for opportunities in the rental market at a time when alternative investments offered little comfort,” he added. 

Of the owner occupiers, remortgages accounted for 37.7% of advances, an increase of 8.2% on last year. This was the only type of lending to see a quarterly increase, rising from a share of 32.1% in Q1. 

The proportion of house purchase lending fell during the quarter, making up 41.6%. Compared to last year, this was down by 8.9% and on Q1, this was down from a share of 47%. 

Lending to first-time buyers accounted for 18.2% of advances, a yearly drop of 3.1%. This was also down on the 19.8% share they held in Q1.

Homemovers continued to be the most impacted by the restrictions imposed on the housing market, as lending to this segment recorded its lowest share since 2009, dropping to 23.4%. Compared to Q1 when there were no restrictions on movement due to the pandemic, this was down from a share of 27.2%.

On the same period last year, the proportion of lending to homemovers dropped 5.8%. 

Further advances and other mortgages, including lifetime products, accounted for 6.3% of advances combined.

‘Main concern is whether people will be able to afford their mortgages’

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the buoyant housing market risks being sunk by a squeeze on mortgage lending.

“Mortgage lending between the start of April and the end of June was down by a third, but that’s just the start of it. Mortgages agreed for the coming months have plunged by a half.

“We had expected this. The main concern for lenders is whether people are going to be able to afford their mortgage during the recession. The early signs seem to show they’re right to be worried. Covid-related mortgage holidays are not counted as arrears, and yet the value of mortgages in arrears was up 2.8% in these three months – to £14.1bn.

“They’re also concerned about house prices in future, so any weakening in the housing market is going to exacerbate the tightening of the mortgage market.

“As a result, they’re working to reduce the risk profile of borrowers, which is why we’re seeing lenders more wary of high income multiples and small deposits.”