Borrowing for house purchases continued to decline in Q2 following a sharp dip at the start of the year, research from UK Finance has revealed.
The research, Household Finance Review Q2 2023, explained that first-time buyer purchases and homeowner purchases were down 28 per cent and 30 per cent respectively in Q2 when compared to the same period the year before.
UK Finance attributed this continued fall to “uncertainty in the market” as well as affordability issues.
These issues include house prices being near historic highs relative to income, which combined with higher interest rates and increased costs of living, has made it harder to meet regulatory affordability tests.
The research also reported a “rapid” increase in the proportion of mortgage customers borrowing over a longer term in order to stretch their affordability throughout 2022.
However, it cautioned the levelling off of this trend present in Q1 of this year was found to have continued into Q2.
Typical income multiples and average loan-to-values were also found to have started to fall back, favouring those with higher incomes and/or larger deposits.
Remortgaging
Additionally, the research discovered that affordability constraints impacted some external remortgaging activity and resulted in internal product transfers being more popular.
Q2 saw 84 per cent of remortgaging deals being internal product transfers and within that, April was a record monthly high at 88 per cent.
By comparison the average for 2022 as a whole was around 77 per cent.
Mortgage arrears rose in line with expectations, although the total level of arrears remained low by historic standards.
Elsewhere, the research found that households continued to dip into their savings in Q2.
This resulted in deposits being around 2 per cent lower at the end of June compared with the year before, although they remained above pre-pandemic levels.
UK Finance managing director of personal finance, Eric Leenders, commented: “Around 700,000 borrowers have come off their fixed rate deal in the first half of this year and likely found themselves on a much higher rate."
Lenders stated that this transition will continue to be largely affordable because of the 'stress tests' applied when such mortgages was originally taken out.
“But circumstances can change, so if anyone is struggling with their mortgage payments, they should reach out to their lender who will have a range of tailored support available to help,” he added.
tom.dunstan@ft.com
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