Mortgage Borrowing Sees Q1 Slump

Despite a surge in mortgage applications towards the end of 2023, mortgage borrowing in Q1 was down compared to the same period last year, according to the latest figures from UK Finance.

Mortgage Applications on the Rise

As mortgage rates started to reduce at the end of last year, there was a noticeable uptick in the number of mortgage applications. Between October and December 2022, there were a total of 188,503 applications, compared to 237,477 in the same period in 2023. It was suggested that the market could see a recovery in the first half of 2024 as the applications followed through to completion.

Borrowing Down, Despite Expectations

However, UK Finance says any sustained recovery has yet to materialise, as market expectations for a base rate reduction shift to later in the year. Therefore, borrowing for house purchases in the first quarter was still down compared to Q1 2023. In Q1, mortgage borrowing stood at £26,987.1m, compared to £28,193.4m the year prior. The number of loans borrowed in Q1 this year was 121,130, compared to 126,970 in the same period last year.

Mortgage borrowing in Q1

Longer-Term Mortgages on the Rise

For those who did secure a mortgage, the trend of borrowing at longer terms to reduce monthly repayments and help with affordability dipped slightly in Q1 but remained high. Of this, 21% of new first-time buyers (FTBs) extended terms over 35 years. UK Finance says the trend of longer-term mortgages points to more entrenched affordability issues as costs and house prices remain high relative to incomes.

Refinancing Trends

Affordability constraints are also changing the pattern of re-financing, with external lending falling by 21% compared to Q1 2023. Data found that internal product transfer continued to be popular, growing 9% year-on-year.

Mortgage Arrears and Repossessions

Meanwhile, the number of mortgage customers in arrears grew to 110,150 in Q1 2024, up from 107,250 cases in Q4 2023. Early arrears cases fell slightly in Q1 2024, indicating any increase in arrears next quarter will again be limited. There were 1,470 mortgage repossessions in Q1 2024, below pre-pandemic levels.

Industry Insights

UK Finance managing director of personal finance Eric Leenders says: “Some households were in a better place financially in Q1 this year, but we are not out of the woods yet.”

“Among the more positive signs, we can see that overdraft and interest-bearing credit card debt are at record lows, and many households have stopped using their savings to help with the rising cost of living.”

“However, we know that this will not be the case across all households, and lenders want to support anyone who might be struggling. Cost of living pressures remain, and with 1.6 million mortgages due to come off fixed rates this year, there may be challenges ahead for some.”