New report highlights an uplift across the market – but is that reality?
Latest data suggests that mortgage borrowing is on the up – but is that reflected in what mortgage brokers are seeing on the ground?
In Q2, borrowing was up by 19% for first-time buyers and 15% for movers, when compared with the same period last year. The uplift in the FTB market has been supported by an increased take up of longer mortgage terms to improve affordability, it seems. More than one in five borrowers took out loans with terms of 36 to 40 years in Q2, according to the findings from UK Finance.
The trade association’s Household Finance Review for Q2 2024 further concludes that the payment shock for customers reaching the end of their fixed rate deals and looking to refinance peaked at the end of last year. Arrears numbers stabilised, falling very slightly from 109,900 at the end of Q1, to 109,700.
How is this impacting brokers?
The findings of growth in borrowing have been borne out by the industry professionals Mortgage Introducer has spoken with, who are reporting brisk business, particularly within the first-time buyer, buy-to-let and remortgage spaces.
Ajay Nayyar, managing director of broker firm Hearthstone Mortgages said he saw the busiest first quarter of his career in buy-to-let, which continued into Q2.
“This market, I can say, has never reduced, based on what business we are writing,” commented Nayyar (pictured left). “This has maintained its consistency throughout Q2, with another sharp increase in the last two weeks leading into Q3.”
Hearthstone had seen a sharp increase in enquiries since interest rates started dropping, he added.
“Many buyers were waiting in the wings as such, anticipating a decline in rates,” Nayyar reasoned. “We are seeing longer term mortgages in all instances currently with buyers and home movers, as well as those remortgaging off existing fixed rates, so as to lower the monthly payments as much as possible. I believe I have only had two cases where this wasn’t requested by a client in the last six months.
UK Finance reported that lending levels in Q2 were still around 16% lower in 2022, and applications have since tailed off as house prices recovered. In Nayyar’s view, lenders are struggling to keep up with the volume of applications, and getting to offer is currently a longer process, he said.
“This has a knock on effect on solicitors also, who are overworked. The general theme is longer times to completion - meaning that this growth will most likely continue through to Q1 of 2025, pending the anticipated disastrous budget on its way in October,” Nayyar predicted. “I believe that budget could very well have a large say in what happens to this growth.”
What has helped mortgage business grow?
For Richard Campo, head of growth at mortgage and insurance practice Heron Financial, lower rates have helped lift business over the summer.
“We are around 20% up year on year so far, so it has been noticeably busier,” reflected Campo (pictured second from left). “We do expect that to continue and get busier still, especially in the new build market which has remained relatively sedate for the last few years. I feel there is still some nervousness among lenders to really loosen the purse strings just yet.
“Clients who are coming to refinance are also exploring longer terms to try and keep payments nearer what they are used to, especially if their costs have gone up in recent years.”
Mortgage and protection specialist Serena Smith remains positive too about activity at her business, Mortgages with Serena, which tends to advise first-time buyers in their 20s to 30s.
“The market is still buoyant and younger borrowers who are serious are willing to make sacrifices to make it on the property ladder and still be mortgage free before state retirement age,” noted Smith (pictured second from right)
Her first-time buyer clients are comfortable with longer mortgage terms, she said, enabling them to afford the monthly payments. A small number of remortgage clients are extending their terms, and the improvement in loans to values is also helping reduce payment shock, she added.
It’s not just a younger demographic that’s boosting activity levels in the mortgage market it seems. LiveMore – which lends to the 50-90+ age group – also welcomed the findings.
“It’s gratifying to see lending growth finally emerge in Q2,” said Simon Webb, its managing director of capital markets and finance.
Since 2010, there has been an emerging pattern of people stretching their mortgage affordability by taking out a term of 30 years or more, added Webb (pictured right).
“A combination of rising inflation, mortgage rates and the cost-of-living accelerated this in 2023,” he observed. “UK Finance says this trend has continued in Q2 of 2024, still primarily to stretch affordability as much as possible to get the loan size needed to keep up with ever increasing house prices.
“Borrowers are opting for mortgages of 30+ years but there are also options for fixed for life mortgages. These are repaid when the borrower passes away, moves into care or sells up. With a rapidly growing ageing population we need to cater for their financial needs and that includes creative mortgages options.”
Read more: Are landlords losing their incentives to remain in the buy-to-let market?
How many mortgage repossessions were there in Q2?
UK Finance reported that there were 1,620 mortgage repossessions in Q2, up 34% from the 1,210 in Q2 2023 but still substantially below pre-pandemic levels. The rise was due to the courts continuing to work through their backlog of historic long-term cases from before the pandemic.
Consumer spending continued to be weak, apart from travel, while household savings levels started to rise again. Meanwhile, overdraft debt continued to trend down and remained well below pre-pandemic levels. Outstanding credit card debt continued to grow, but the proportion that was interest bearing remained just under 50%, a record low since at least 1995.
Eric Leenders, managing director of personal finance at UK Finance, summed up with a note of caution.
“Whilst it's encouraging that cost-of-living pressures easing meant some households were in a slightly better place financially in Q2 this year, it’s too early to say that the worst of the challenges facing households have passed,” he said.
