Mortgage lending “remained weak” in the third quarter of the year, which saw 26% fewer home moves compared to a year ago, data from UK Finance shows.
“The contraction in house purchase lending continued, with cost-of-living pressures and higher interest rates presenting a significant barrier to mortgage affordability,” says the banking trade body’s third-quarter Household Finance Review.
It adds: “Indications are that the final quarter of the year will show a further contraction.”
First-time buyer activity is 22% down compared with the first nine months of last year, the study says.
“Lending to both FTBs and home movers has now fallen, year on year, in every month since December 2022,” it adds.
“The significant contraction in lending this year has been widespread with few, if any, areas of new lending seeing growth.”
The report points out that interest rates have risen to 5.25% from 0.1% in December 2021, which has pushed up mortgage borrowing and the cost of living.
It says: “Those with smaller deposits or needing to borrow more relative to income are facing much greater challenges in meeting affordability rules.”
The study says this year the number of FTBs who had incomes of less than £50,000 fell to 46%.
This compares with 57% of FTB households on income of less than £50,000 in 2021.
The report adds: “These customers are now having to put down deposits equal to twice their annual earnings, significantly more than in recent years.
“However, borrowers with higher incomes have not seen the same shift in increased deposit.”
Mortgages arrears lifted to 99,840 at the end of the third quarter, up 9% on the previous three months. This total is less than 1% of the total number of outstanding mortgages.
UK Finance managing director of personal finance Eric Leenders says: “While the cost of living continues to challenge households, many are managing to avoid using overdrafts and still have a savings cushion to draw on.
“Importantly, this won’t be the case for everyone, and we may see an increase in customers worried about their repayments.
“Meanwhile, sustained house prices and rising mortgage rates have meant mortgage lending remained weak last quarter, and we expect this to continue in the fourth quarter of this year.”
