Lenders warn of mortgage slump in second half of 2023

The chief executive of the Building Societies Association is warning that mortgage lending - already down on last year - is likely to falter further through the rest of 2023.

Robin Fieth says: “The drop in gross mortgage lending compared to the same period last year reflects the impact on the housing market caused by the economic slowdown.

“Activity in March showed tentative signs that the market is recovering, with mortgage loan approvals 13% higher than in the final quarter of 2022, when the market was affected following the Liz Truss Government’s ‘fiscal event’. However, lending volumes are likely to show continued weakness this year as the housing market responds to higher interest rates and strains on household finances from the higher cost of living.

“Building societies continue to remain alert to borrowers facing a squeezed household budget and who may be worried about making their mortgage payments, and are ready to offer a safe environment for a non-judgemental conversation alongside tailored support.”

 The BSA figures, just out, show that gross mortgage lending in Q1 of this year was £13.9 billion, down 23 per cent on the same period of 2022.

During Q1 this year, building societies approved 85,234 mortgage loans, down 24 per cent. Building societies lent to 21,498 first-time buyers in Q1 2023, 16 per cent down on the 25,735 loans made in Q1 2022. 

However, building societies’ savings figures are much more optimistic.

In the first quarter of 2023 savings balances at building societies increased by £8.5 billion – more than three times the amount in the same period last year, whereas savings balances at other providers fell. The BSA claims that this suggests consumer awareness of building societies paying, on average, a higher rate of savings interest compared to the major banks.

Fieth comments: “Whilst the last decade has been a difficult time for savers, the 12 bank rate rises in the last 18 months have seen interest paid to savers rising, meaning shopping around can make a sizeable difference to the returns available.

“The significant growth in building societies’ savings balances in the first quarter of the year, against the backdrop of an overall fall in savings, suggests the positive rate differential between building societies and banks is influencing customer choice.

“In 2022, building societies offered higher savings rates than those in similar accounts with the major banks. Building society savers received £1.2 billion more in interest than they would have got at the major banks.”

The results from the BSA come as lenders are accused of having withdrawn hundreds of mortgage deals from the market. 

A jump in swap rates caused by higher-than-expected inflation figures last week prompted lenders to reduce the number of mortgage products available to homebuyers from 5,385 deals to 5,012 while the average rate on two and five-year fixed mortgage soared to 5.38 and 5.05 per cent in four weeks. 

The mortgage product data has come from independent mortgage monitor Moneyfacts.