House purchases up to highest quarterly level since 2007

House purchase lending in Q4 grew to the highest quarterly level since 2007, led by December levels that were 31% higher year-on-year, according to UK Finance’s Household Finance Review.

The review showed that mortgage lending was lower in 2020 than in 2019 as a result of the decline in lending during Q2, however lending was higher than expected due to the high Q4 activity.

Applications data points to a likely slowing in house purchase activity later in 2021 once the stamp duty holiday has ended, following an extension announced in the Chancellor's Budget yesterday to June.

Remortgages with equity withdrawn have become more popular in Q4 2020, with the average value of money withdrawn increasing.

This was driven by use for deposits for second homes, new buy-to-let properties or to assist with deposits for children buying their first properties, according to UK Finance.

The final quarter of 2020 saw a modest rise in arrears and minimal possessions, in line with earlier 2020 trends.

While arrears are anticipated to rise in 2021, lenders remain prepared to assist customers and mitigate payment problems.

Eric Leenders, managing director of personal finance at UK Finance, said: “Homebuyers looking to take advantage of the stamp duty holiday were behind the housing market’s strongest quarter for purchases in 13 years, in the final quarter of 2020.

“Despite this uptick in activity, annual purchases for the whole year were around a tenth lower than the previous year, due to a complete shutdown of the market in the first lockdown.

“The stamp duty holiday helped to boost activity at the end of 2020, and it is likely many of these purchases have been brought forward in order to take advantage of the savings.

“The chancellor’s announcement in the Budget to extend the stamp duty holiday until the end of June before then phasing it out will prevent a cliff edge, reducing the risk of house sales collapsing and will prove beneficial for all parties involved in the housing market.

“There were some signs of increased consumer confidence in unsecured borrowing, with credit card spending growing during the quarter, however, this was mixed with the continuing economic uncertainty and further lockdown restrictions which led to a decline in new personal loans.

“The payment deferral schemes, which were in place for most of the last year, have helped millions of customers impacted by COVID-19.

“The plans to gradually ease the lockdown restrictions over the coming months will be a welcome sight for many.”

Richard Rowntree, managing director of mortgages at Paragon Bank, added: “The final quarter of last year marked the return of landlords buying new property as they reacted to the stamp duty holiday and strong levels of tenant demand.

“The 22,500 loans written for buy-to-let house purchase during the period was the strongest since Q1 2016, when the stamp duty surcharge was introduced.

“In terms of value, £3.4bn was lent for the purchase of new buy-to-let property during Q4, again the highest level since the first quarter of 2016.

“The strong final quarter helped the buy-to-let sector recover some of the lost ground from the early days of coronavirus and overall lending for the year was down just 13% on 2019 at £37bn.

“I’m sure many in the industry would have feared a much worse result when the housing market was closed, so the bounce back during the second half of 2020 was encouraging, demonstrating the sector’s resilience and effective response to the pandemic.

“Demand for buy-to-let mortgages has been strong as rented property has provided a stable home for many during a time of uncertainty and landlords have modified their portfolios in response to the needs of tenants that have changed as a result of the pandemic.

“I anticipate that we will continue to see strong levels of house purchase activity in the first and second quarters of 2021 as landlords complete transactions ahead of the stamp duty holiday deadline.

“The sector is prepared to manage the pipeline to ensure that those who have entered into the property buying process are able to complete before the new 30 June deadline, announced yesterday as part of the budget.

“The figures have also revealed that the general downward trend in remortgage activity seen since 2018 has continued.

“We anticipate that this will be reversed and new business in Q2 will be driven by remortgage activity as significant numbers of five-year fixed rate mortgages, which increased in popularity in response to the introduction of the buy-to-let stamp duty surcharge in April 2016, are set to reach maturity.”

John Goodall, chief executive of Landbay, said: “Although buy-to-let lending was down in 2020 compared to 2019, the last three months of last year were strong with 8,000 buy-to-let house purchase mortgages in December alone.

“This is the highest number since March 2016 when there was a rush to buy before the 3% stamp duty surcharge was introduced for buying a second home.

“The buy-to-let market is likely to continue this momentum spurred on by the current stamp duty holiday and its extension until the end of June.

“In addition, moving the stamp duty threshold up to £250,000 from July to September will be beneficial for landlords looking to increase their portfolio, or indeed investors looking to invest in property for the first time.”