High LTI Lending Hits 8-Year Low, Arrears Jump: What’s Next for the Mortgage Market?

The latest data from the Bank of England has sent shockwaves through the mortgage industry, revealing that high loan-to-income (LTI) lending has plummeted to an 8-year low. Gross mortgage advances have also fallen to their lowest level in four years. But what’s behind this trend, and what does it mean for borrowers and lenders alike?

LTI Lending Takes a Hit

According to the Bank of England’s Mortgage Lenders and Administrators Statistics, LTI lending now accounts for just 39.7% of all loans, a 3% drop from the previous quarter and a 4.1% decrease from last year. This drastic decline is a clear indication that institutions are taking a cautious approach to lending.

Mortgage approvals are on the decline

The value of gross mortgage advances has also taken a hit, falling by 2.6% from the previous quarter to £51.6bn, the lowest since the second quarter of 2020. This 12% year-on-year decrease is a stark reminder of the challenges facing the mortgage market.

Arrears on the Rise

But that’s not all - the value of outstanding mortgage balances with arrears has jumped by 4.2% from the previous quarter, reaching £21.3bn. This 44.5% year-on-year increase is a worrying sign that many UK households are struggling to make their mortgage repayments.

Mortgage arrears are on the rise

New Mortgage Commitments Soar

However, there is a glimmer of hope. The value of new mortgage commitments has surged by 30.8% from the previous quarter to £60.1bn, a 31.2% year-on-year increase. This suggests that borrowers are still keen to get on the property ladder, despite the challenges facing the market.

What’s Next for the Mortgage Market?

So, what does this data mean for the mortgage market? According to Tom Cuppello, director of risk at Broadstone, the continued increase in outstanding mortgage balances with arrears is a clear economic indicator that we’re not out of the woods yet. He warns that many UK households are still struggling with the cost-of-living crisis and spike in mortgage rates over the past two years.

Mortgage rates are still a concern

However, Simon Gammon, managing partner at Knight Frank Finance, takes a more optimistic view. While he acknowledges that the situation is serious for those struggling to pay their mortgage, he believes it doesn’t yet present a systemic risk to the housing market. He points out that the proportion of total loan balances in arrears is still relatively low at 1.28%, and that new arrears cases actually dipped during the quarter.

As mortgage rates continue to trade sideways, Gammon predicts that they will ease once the timing of the Bank of England’s first cut to the base rate becomes clearer.

Mortgage rates may be on the way down

Conclusion

The mortgage market is facing unprecedented challenges, but it’s not all doom and gloom. While high LTI lending has hit a new low and arrears are on the rise, new mortgage commitments are soaring. As borrowers and lenders navigate the choppy waters of the mortgage market, one thing is clear - it’s more important than ever to stay informed and up-to-date on the latest developments.