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New data shows mortgage market in rude health before mini-Budget

Christina Hoghton
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Christina Hoghton

Despite rates rising steadily over the course of the year, buyer demand was high before the disastrous financial statement from Kwarteng on 23rd September

Figures from the Bank of England for the period leading up to the mini-Budget show a buoyant mortgage market.

It revealed that the value of mortgages agreed for the three months up to the ‘finanical statement’ were the highest since the autumn of 2007, just before the end of the financial crisis.

Gross mortgage lending in the third quarter totalled £85.9bn, up £8bn on the previous quarter, and 17% higher than a year earlier.

Low arrears

Arrears were also running at their lowest levels since records began, said the Bank, at just 0.78% of all outstanding mortgages.

And the overwhelming majority – 93% – of mortgage lending was done at less than two percentage points above the Bank of England Base Rate. That’s 35.7 percentage points higher than a year earlier, when less than 60% of advances was priced within two percentage points above Base Rate.

The data also showed a rise in high loan-to-value lending to those with a small deposit of 10% or less, and an increase in high loan-to-income lending.

Turning point

Despite the rising Base Rate, indicators were all positive in the period before the mini-Budget, which caused havoc in the financial markets, leading to sharp mortgage rate ries.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The profound impact of the mini-budget on the mortgage market has been laid bare, as rosy figures for the autumn have led to a far gloomier and more miserable winter. In the weeks leading up to the announcement mortgage rates had been rising for months, but still demand was booming. Mortgages agreed for the coming months were at their highest since the third quarter of 2007 – before the financial crisis.

“Buyers were still keen to snap up properties in a rising market, and felt the mortgage rate rises we’d seen since the end of last year were still under control. Mortgages agreed for the future had risen during the period – up 4.5% in a quarter and 11.2% in a year to £87.8 billion.

“All that changed overnight with the announcement of the mini-budget. Demand for mortgages plummeted, along with buyer enthusiasm. UK Finance now expects mortgage lending to fall 15% -back to pre-pandemic levels, while property sales will fall just over a fifth (21%). Predictions of property price falls vary, but overwhelmingly property values are expected to fall during 2023.

“Meanwhile, much higher mortgage rates are also expected to take their toll on those who come to remortgage. Alongside rocketing bills and expenses, it’s going to leave thousands of people struggling to cover the cost of their mortgage. UK Finance says an estimated 98,500 people will be in arrears next year. It’s a world away from the rosy glow of the autumn.”

Andrew Montlake, managing director of broker, Coreco, added: “The third and fourth quarters may as well be in different dimensions, as the mayhem caused by the mini-Budget saw lenders up their rates sharply, which torpedoed demand.

“The mortgage market in the third quarter was fluid but now, like the weather, it’s frozen. Higher interest rates and sky-high inflation, coupled with an economy edging into recession, will see the fourth quarter figures differ significantly. Many prospective buyers are also waiting to see if house prices come down significantly in the months ahead.”