Mortgage lending returns to pandemic levels in new house price threat

The value of mortgage lending has slumped to its lowest level since the second quarter of 2020, Bank of England data shows, suggesting tough months ahead for the housing market.

Mortgage Lenders and Administrators Statistics from the Bank of England has revealed the value of new mortgage commitments was 16.1% down annually during the first quarter of this year at £48.9bn – the lowest observed since the second quarter of 2020.

The share of mortgage advances for house purchase was 50.1%, down 0.6 percentage points from the same time last year and the lowest since the second quarter of 2020, the Bank of England revealed.

The proportion of lending to borrowers with a high loan to income ratio decreased by 5.6 percentage points on the quarter to 43.7%, also the lowest since the second quarter of 2020.

Meanwhile, the value of outstanding balances with arrears increased by 9.5% over the quarter and 12.5% over the year.

Commenting on the data, Karen Noye, mortgage expert at Quilter, said: “The net impact of this will inevitably be felt in house prices which have already tumbled over the past few months.

“If repossessions start to increase and the market becomes flooded during a period where demand is lacking it will have a damaging impact on house prices.”

She suggested the picture is likely only set to get worse as mortgage pricing has increased in recent weeks and products have been pulled amid higher than expected inflation data and expectations that the cost of borrowing will rise.”

Jeremy Leaf, north London estate agent and former RICS residential chairman, added: “The recent volatility in the mortgage and property markets make these figures particularly interesting. 

“Although comparisons with the busy period 12 months ago can be misleading, they still show that buyers are proceeding cautiously, despite improvements in activity on the ground since the beginning of the year.

“Provided mortgage deals are left on the table and interest rates don’t keep rising, then stability will return as the market is still being supported by strong employment numbers and better-than-expected salaries.”