Mortgage lending has taken a steep plunge in the early months of this year, according to official figures, as borrowers grow increasingly concerned about fluctuating interest rates. Recent spikes in mortgage rates, triggered by the anticipation of further base rate hikes and financial market volatility, have left potential borrowers anxious and hesitant.
Experts at Moneyfacts have reported that the average rate for a new two-year fixed mortgage has surged to 5.86 percent, up from 5.83 percent last Friday, 5.72 percent last Monday, and a month ago at 5.33 percent. In comparison, just a year ago, the average rate for a two-year fix stood at a mere 3.03 percent.
Similarly, the average rate for a five-year mortgage deal has climbed to 5.51 percent today, rising from 5.48 percent yesterday, 5.41 percent last Monday, and 5.03 percent a month ago. These significant rate increases have dampened the enthusiasm of prospective homebuyers, and even compelled some individuals who took out loans secured two or five years ago to face substantial hikes in their monthly payments.
The Bank of England’s latest data reveals that a total of £58.8 billion was borrowed in new mortgages during the first quarter of 2023. This represents a sharp decline of 26.3 percent compared to the £76.9 billion borrowed in the same period last year. In fact, it is the lowest lending level since the period between April and June 2020, when the housing market experienced a temporary shutdown due to the pandemic.
New mortgage applications approved for the upcoming months, known as “new commitments,” have also taken a hit, plummeting by 40.7 percent to £48.9 billion compared to £82.5 billion a year ago. This marks the lowest level since April-June 2020. Moreover, the proportion of individuals borrowing to remortgage has risen by 5.8 percentage points to 34.8 percent, while the share of those borrowing to purchase a new home has dropped by 0.6 percentage points to 50.1 percent – the lowest level since the start of the pandemic.
Buy-to-let landlords, already burdened by higher mortgage rates and the anticipation of increased regulation, accounted for only 9.8 percent of the total borrowing, the lowest since 2011. NatWest has also announced changes to its buy-to-let rates, with some seeing an increase of 157 basis points.
Furthermore, there has been an alarming surge in the number of individuals failing to keep up with their mortgage repayments. The official figures indicate that £14.9 billion is in arrears, accounting for only 0.89 percent of outstanding mortgage balances. However, this represents a significant increase of 9.5 percent in just three months and 12.5 percent in a year.
The recent volatility in the mortgage market suggests that the lending slowdown may worsen, as rates begin to rise again following last Autumn’s sudden surge. Borrowers are now left uncertain and lacking confidence in the stability of future rates.
Major lenders have swiftly withdrawn their mortgage offerings from the market without prior notice, in preparation for reintroducing them at higher rates. This has left borrowers and prospective buyers stranded in the midst of their applications. For instance, Santander recently announced the temporary withdrawal of all its residential and buy-to-let fixed and tracker rates due to prevailing market conditions.
HSBC made a similar move last Thursday by temporarily removing rates available through broker services, citing the need to “stay within its operational capacity.” Although it briefly reopened its broker channel on Friday, these actions have forced mortgage brokers to advise borrowers to be prepared to secure a new mortgage rapidly to avoid being caught off guard by sudden rate changes.