Analysis reveals the cause of the decline
Following the unprecedented boom in house purchase activity from late 2020 through the summer months of 2021, mortgage loan volumes have since followed a downward trend, which continued in the first quarter of 2022, trade group UK Finance has reported.
According to the latest UK Finance Household Finance Review, the number of people moving home in the first three months of the year dropped 42% compared to the same period last year, while the number of first-time buyers was down by a more modest 12%.
UK Finance, however, stressed that although there was a decrease in home movers and first-time buyers compared to the unprecedented highs of last year, numbers remain slightly above 2019 levels as the ongoing effect of the pandemic drives demand for more space.
Read more: Is the pandemic-induced property market boom fizzling out?
“The greater fall in homemover numbers is largely a result of the unprecedented volumes seen this time last year, as homemovers saw the greatest benefit from the Stamp Duty holiday,” the trade association for the UK banking and financial services sector stated in its report.
“Following the end of the Stamp Duty holiday, this drop-off in activity is fully expected, as many transactions that would have normally taken place in 2022 or beyond were brought forward to take advantage of the material savings which the holiday offered.”
While UK Finance expects relatively robust house purchase activity in the second quarter, it also anticipates that the numbers will almost certainly show a year-on-year decline given the unprecedented surge in Q2 last year as borrowers rushed to beat the Stamp Duty deadline.
Meanwhile, the volume of mortgage applications submitted in Q1 2022 – most of which will complete in Q2 – was 2% greater than the same quarter last year.
However, UK Finance noted that it is likely that much of this growth is concentrated in the remortgage market. Its applications data includes those for both house purchase and remortgage loans but the two are not separately identified.
Read more: Mortgage lending figures drop in April.
“While we expect mortgage activity to be strong through this year, this will largely be driven by customers coming to the end of their fixed rate deals and looking to switch to a better rate. This contrasts with previous years when a significant element of remortgaging activity involved borrowing substantial sums of additional money, in many cases to fund further property purchases,” the trade group said.
Aside from house purchase activity and mortgage lending, UK Finance’s analysis also reported on trends in household spending, saving, and borrowing during the first quarter of 2022. The review, produced in collaboration with Accenture, also includes new analysis on the potential impact of the cost-of-living challenge facing households this year.
UK Finance found that the average mortgaged household will see a 3% reduction in the amount of disposable income left over after mortgage, credit commitments, and living costs.
It added that the cost-of-living squeeze will be felt most acutely in lower-income brackets, which have around half the spare income of those in higher brackets, even before cost-of-living pressures are factored in.
“We know that some people, particularly those on lower incomes, will already be feeling the strain. There are significant additional pressures on household finances in the second quarter, most notably from energy price rises and tax changes,” Eric Leenders, managing director of personal finance at UK Finance, said.
“Any customers worried about meeting their loan payments should speak to their lender early to discuss the tailored support available to them. Lenders won’t put customers on a plan that they can’t afford.”
Read more: Continued base rate rises sound alarm bells for borrowers.
Krishnapriya Banerjee, managing director in Accenture’s UK banking practice, added that while the first quarter painted a fairly stable picture of the UK’s household finances, further potential interest rate hikes and energy price booms mean the full effects of the soaring cost-of-living have yet to bite into household budgets.
“Although many banks have started making provisions to support their most vulnerable customers, they also need to focus on communicating their empathy for consumers affected by this crisis. Banks need to strike the perfect balance of delivering digital services and human-centric banking to help customers navigate this challenging situation,” Banerjee said.
