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UK house buying activity struggles over the spring while arrears creep up

Nick Cheek
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Nick Cheek

Mortgage borrowing activity remained subdued in the months from April to June despite a recovery in consumer confidence, data from a UK financial organisation has revealed.

The Household Finance Review from UK Finance for the second quarter of the year revealed that house purchase activity was down by almost a third compared to the same period last year. 

It said the weakened activity was recorded across both home movers and first-time buyers and was due to affordability challenges. 

It said with this set to continue, house purchase lending would “remain constrained over the near term”. 

In Q2, applications for house purchase rebounded compared to Q1 but this was still down on last year and meant there would be a decline in completions in Q3. 

Product transfers to suppress gross lending values 

Lender-to-lender remortgage activity was also weak as UK Finance said in Q1, there had been an annual rise in pound-for-pound remortgages while in Q2 pound-for-pound refinancing activity fell while product transfers rose.  

UK Finance said because product transfers depended on the maturity cycles of lenders, a surge in any month was not an indication of borrower trends. For example, product transfers made up 90% of refinancing transactions in April. The trade body said a shift towards product transfers had been noticed in the last 12 months, in line with higher rates and the rising cost of living. 

It said many borrowers were still remortgaging externally but the affordability pressures were leading some to do a product transfer instead.  If this trend continues, UK Finance said this would bear down on gross lending values for the year. 

The trade body noted that while the return of consumer confidence resulted in more card spending and personal loan borrowing, this did not translate to mortgage activity. 

It said: “While confidence was on the up in Q2, household budgets are still under significant pressure.” 

Arrears and possessions 

In Q2, headline arrears rose by 8.3 per cent or 6,920 cases to 90,680 mortgages with arrears of more than 2.5 per cent of the outstanding balance. Although this is low by historical standards, this is the largest quarterly increase since 2009. 

Heavier arrears cases, that are more than 10 per cent of the overall balance, fell as lenders worked through the backlog which had built up over the pandemic. 

UK Finance said it expected there to be 98,500 arrears cases by the end of December 2023.  There was a small decline in repossessions in Q2, from 1,260 cases in Q1 to 1,120 in Q2. 

It said the fall was likely to be because of lenders and courts working through the backlogs.  UK Finance expects the rate of possessions to gradually increase over the year and include cases which reflect both the current cost of living crisis and the pandemic.