Lower rates drive growth, but affordability challenges remain for first-time buyers
Mortgage lending has increased by 15% year-on-year in the third quarter of 2024, continuing the annual growth trend seen in the second quarter, the latest Household Finance Review from UK Finance has shown.
According to the trade body, mortgage activity this year has been highly sensitive to changes in product pricing. Application volumes rose in Q3 as lenders reduced rates further, pointing to potential lending growth in the final quarter of the year.
Although affordability challenges have eased over the year, they remain a key issue for homebuyers and remortgaging borrowers. Internal product transfers, which do not require affordability assessments, continue to dominate refinancing activity, accounting for 83% of all such transactions in the third quarter.
First-time buyers (FTBs) face persistent affordability pressures despite lower interest rates, with rising house prices pushing metrics back towards late-2023 levels. UK Finance data showed a notable proportion of new FTB loans now involve monthly payments exceeding 30% of gross income.
Meanwhile, mortgage arrears declined by 3% in Q3 to 106,630 cases. Early-stage arrears also fell, suggesting a further reduction in total arrears is likely in the fourth quarter. However, mortgage repossessions remained unchanged at 1,700 cases, significantly below pre-pandemic levels as courts continue to process a backlog of older cases.
UK Finance attributed the relatively low arrears and repossession figures to responsible lending practices, emphasising that repossession is a last resort and that borrowers struggling to make payments should contact their lender for support.
“We are seeing more signs that the cost-of-living pressures bearing down on households are beginning to ease, with mortgage lending increasing during the quarter,” said Eric Leenders (pictured), UK Finance managing director of personal finance.
“Although the challenges facing households are far from over, the picture that’s emerging from our data is one of gradual improvement. We know this will not be the case for all households though, and I’d encourage anyone who might be struggling to reach out to their lender for support.”
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