UK mortgage lending falls sharply as arrears increase: BOE
BRITAIN’S mortgage lenders reined in the pace of making new loans sharply in the third quarter as arrears jumped, a further sign that the Bank of England’s string of interest rate hikes is slowing activity in the housing market.
Lenders made commitments on £51.5 billion (S$86.7 billion) of mortgages in the third quarter, according to the BOE’s Mortgage Lenders and Administrators Statistics published on Tuesday (Dec 12). That was down 16.5 per cent on the previous quarter and 41.4 per cent from a year ago.
The value of outstanding mortgage balances with arrears climbed 11.4 per cent on the previous quarter and 44 per cent on a year ago to £18.8 billion, the highest level since the second quarter of 2015.
The data provides some indication that the BOE’s string of 14 consecutive rate hikes between December 2021 and August 2023 is filtering through to the real economy. As the nine-member Monetary Policy Committee prepares to announce its latest rate decision on Thursday, with economists widely expecting a further hold, it is still battling a historically tight labour market to bring inflation down from 4.6 per cent to the target of 2 per cent.
Even so, the BOE admitted last week that it expects fewer people to struggle repaying their mortgages than it originally thought, as the labour market has held strong. The housing market has also been more resilient in 2023 than predicted – while several economists expected a peak-to-trough fall in prices of 10 per cent, only around half of that has so far materialised according to Halifax and Nationwide Building Society’s measures.
Karen Noye, mortgage expert at wealth manager Quilter, said the data “illustrate quite how much higher interest rates have sent the market into chaos”.
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“Despite these scary figures house prices have yet to tumble and, in fact, have recently been rebounding,” she added. “These green shoots may soon be killed off by a winter frost if rates increase again or if there is another economic shock, but for now house prices are remaining resilient.”
While higher mortgage costs over the last year have deterred home movers, first-time buyers pressured by higher rental costs are still keen to get onto the property ladder. The BOE said lending to first-time buyers increased by 1.2 percentage points on the quarter to 25.8 per cent of gross advances, the highest since reporting began in 2007.
The share of buy-to-let mortgages, meanwhile fell to its lowest level in 13 years at 7.5 per cent of gross advances.
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“This demonstrates quite how inhospitable the tax environment has become for landlords,” said Noye. “Many are now choosing to not bother adding to their property portfolios or leave the market altogether as a result.”
The outstanding value of all residential mortgages fell by 0.1 per cent on the previous quarter to £1.65 trillion, the BOE said. This was 0.8 per cent lower than a year earlier. BLOOMBERG
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