Bank of England data showed the market cooling at the end of 2021 with the value of gross mortgage advances dropping 8.4%.
However, this decline will come as little shock to many with the Stamp Duty holiday having come to an end.
In total the central bank said some £70.2bn was advanced by mortgage lenders in Q4 – the lowest level since Q3 2020.
The quarter also saw the share for house purchase for owner occupation return towards pre-coronavirus pandemic levels, at 53.0%, down 10.9% from 2020 Q4.
The share of gross advances for remortgages for owner-occupation also moved towards levels observed before the pandemic, at 28.1%, an increase of 9.7% since 2020 Q4.
Arrears also fell with the value of outstanding balances with arrears having decreased by 2.1% over the quarter to £13.5bn. Accounts in arrears now make up 0.84% of outstanding mortgage balances, the lowest since recording began in 2007.
Gareth Lewis, commercial director of property lender MT Finance, said: “The Bank of England figures suggest a cooling of the market in the fourth quarter of last year, which is not surprising given the frenetic pace of activity over the previous 18 months.
“That pace was not sustainable and with double-digit house-price growth pricing first-time buyers even further out of the market, a more reasonable pace, similar to pre-pandemic levels, is welcome.
“That said, this year has got off to a busy start. There remains a huge amount of positivity among buyers with January and February turning out to be busy months on the lending front.
“It will be interesting to see what happens over the coming couple of months with regard to purchase transactions.
“We are likely to see a further increase in base rate and with the bigger lenders starting to raise their mortgage rates, borrowing costs are set to edge up across the board. This may see people clamour to get deals done sooner rather than later, focusing minds on low rates while they are still available, and mean a continuation of these positive figures.”
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco, added: “It’s encouraging that arrears levels have decreased to their lowest level since recording began in 2007.
“This is almost certainly a result of the fact interest rates have been at rock bottom for so long and the jobs market has remained pretty robust, despite the pandemic.
“Unfortunately, we may see arrears rise in the months ahead as the Bank of England raises interest rates to contain inflation and the cost of living squeeze starts to bite.
“Unsurprisingly, there is a stampede to remortgage and lock into the lowest possible fixed rates at present, before rates inevitably increase further.”
Further reaction
Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com:
“The drop in the value of mortgage advances in the last quarter of 2021 compared to the same period the year before was almost certainly influenced by the Stamp Duty holiday, which triggered a significant number of transactions in the second half of 2020.
“A slight increase in the number of mortgages with loan-to-values above 90% compared to a year ago shows the increased lender appetite for this buyer demographic and sector of the market.
“There is fierce competition in the mortgage market and many lenders are looking to higher loan-to-value products to boost their margins as a result.”
Rhys Schofield, managing director at Belper-based Peak Mortgages and Protection:
“Many prospective borrowers just aren’t aware that 95% lending exists again. We’re still getting approached by first-time buyers who think they need a 10% or 15% deposit, when 5% lending has been available for quite some time.
“Although rates crept up in the fourth quarter of last year, they raced up in the first two months of 2022.
“Though there has been no obvious slow-down or reduced appetite to lend from the banks, the issue is the lack of supply in the housing market, which is hindering transaction levels and continuing to drive prices upwards.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“The Bank’s fourth quarter figures show a market calming down from the frenzy of earlier in the year, returning to something resembling pre-pandemic levels.
“The value of new mortgage commitments was 2% less than in quarter three and 11.9% less than a year earlier. The share for house purchase for owner occupation was also down 10.9% from 2020 Q4.
“Of course, these figures are historic and as we head towards the end of the first quarter of this year, mortgage pricing remains incredibly dynamic, with lenders rapidly changing once they find themselves top dog. Not only is the average pricing of two and 5-year fixes increasing but product choice is falling.
“Borrowers must move quickly to secure a rate even though expectations of an interest rate rise at the Bank’s next meeting are being pared back given the Russia/Ukraine conflict and its direct and indirect effects on the UK economy.’
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“Although mortgage advances and commitments are a good indicator of future property market direction, these numbers feel more like the calm before the storm.
“We’ve already noticed in our offices how the Ukraine crisis is slowing enquiries bearing in mind the inevitable impact on household finances and energy prices in particular.
“Although demand for houses remains strong, this additional squeeze combined with continuing lack of supply is likely to contribute to an easing of price growth as many sit on their hands, hopefully for a short rather than extended period.”
Paul McGerrigan, CEO at national credit broker Loan.co.uk:
“The property market overheated by several degrees in the first half of 2021. This was fuelled by the significant discount given to buyers by the stamp duty holiday and a surge of house hunters looking for properties which provided more space after the confinement of lockdown.
“As a result, the outstanding value of all residential mortgage loans was 4.7 per cent higher than a year earlier, standing at £1,613.4bn.
“The full withdrawal of the tax break in September, coupled with an interest rate increase in December, resulted in a significant impact being felt in Q4. This is evident in the numbers with gross mortgage advances dropping 8.4% against the same quarter in 2020 and at the same time hitting the lowest level since Q3, 2020.
“However, it is evident that demand remains strong aided by greater flexibility of working location, a desire for more space and a growing trend of homeowners aspiring to a better quality of work/life balance earlier in their careers, largely created by the restrictions experienced through the pandemic.
“These trends along with the fact that money is still cheap, in relative terms, means that the December dip was not as deep as it would otherwise have been.
“Whilst the market will definitely experience pressure from rising interest rates and tightening household budgets into the first quarter of 2022, we expect demand to continue and growth to prevail, albeit at a much slower rate than 2021.”
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown:
“We saw a remortage renaissance at the end of last year, as property owners leapt through the window of opportunity to lock in a cheap deal for years before higher rates took hold.
“During the last three months of 2021, rate rise speculation took hold, so much so that the markets were surprised when the first rise was put off until December. Property owners realised that the era of cheap mortgages deals was coming to an end, so now was the time to get a new fixed rate deal while they were still around.
“Remortgages made up a larger proportion of mortgages than any time since the onset of pandemic. The value of remortgages for the coming months hit £27.3m – the highest in three years, and the second highest since 2008.
“Overall mortgage lending fell towards the end of the year, but we already know this was a blip because January figures have revealed buyers are still keen. Despite the recent rises, mortgage rates are still incredibly low, and with lockdown savings burning a hole in some people’s pockets, there are still compelling reasons to buy.”
Karen Noye, mortgage expert at Quilter:
“The Bank of England’s latest mortgage lenders and administrators statistics illustrate a market slowly returning to some sense of normality following a period of near insanity.
“The market moved at an extremely rapid pace over the last couple of years, and by the end of 2021 Q4, the outstanding value of all residential mortgage loans had reached £1,613.4bn – 4.7% higher than the previous year.
“Despite the overall increase, 2021 Q4 finally saw a marked slowdown in mortgage lending following the final withdrawal of the stamp duty holiday. The value of gross mortgage advances was £70.2 billion in 2021 Q4, an 8.4% drop compared to the year prior, and the lowest level since 2020 Q3. The rush to buy seen over the last couple of years finally appears to be drawing to a close.
“One thing worth noting is the knock-on effect the rampant property market and subsequent house price inflation has had on first time buyers. The share of mortgages in 2021 Q4 with an LTV ratio of more than 90% was just 4.2%.
“While a bit higher than the year prior, it is still a miniscule number when you consider those people taking out higher LTV mortgages tend to be first time buyers. This illustrates just how few first-time buyers have been able to get on the housing ladder, and it is only set to get worse given the current uncertainty we are living in.
“Throughout 2022, we are likely to see mortgage lending drop as more people are priced out of the market by the rising cost of living and put off by the current economic uncertainty.
“First-time buyers who were already struggling to take their first step on the property ladder will likely find it harder still as any deposit saved for a house will be continually eroded by inflation which will reduce their spending power.”
