Fewer buyers stretching affordability to get on property ladder

Mortgage lending has dropped and buyers are no longer stretching their affordability limits, UK Finance claims.

New data from the banking trade body suggests the level of borrowers taking out 30-year mortgages to boost their affordability when buying a property has peaked.

Its second quarter Household Finance Review found more than half of first-time buyers and one third of home movers were borrowing over terms of over 30 years by the end of 2022.
However, this started levelling off at the start of 2023 and into the second quarter.

At the same time, UK Finance said, typical income multiples and, to a lesser extent, average loan-to-values have stated to fall back, indicating that the “market is being squeezed towards those with higher incomes and/or larger deposits.”

Mortgage borrowing has also continued to drop, with first-time buyer purchases and homemover purchases down 28% and 30% respectively during the second quarter of 2023 compared with the same period the year before.
 

With affordability pressures unlikely to ease rapidly, UK Finance warned that house purchase lending is likely to remain constrained over the near term, indicating that third quarter completions will also dip.

Eric Leenders, managing director of personal finance at UK Finance, said: “Whilst the cost of living challenges have created acute hardship for many, we have also seen that other consumers were largely able to pay off their credit card bills and meet their monthly mortgage payments.  Some have been dipping into their savings to help to pay the bills, whereas some of those with savings have moved their money to accounts with higher rates to maximise their income.

“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, which continue to be largely affordable because of the “stress tests” applied when the mortgage 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.”