Mortgage applications have experienced a sharp decline during the last quarter of 2022, according to the latest Household Finance Review from UK Finance, in partnership with Accenture.
The review also found that consumer confidence fell, and concerns over the environment and the rising cost of living led to changes in consumer spending patterns.
Specifically, spending on air travel decreased, while spending at second-hand shops, handcraft stores, and DIY stores increased.
Personal loan borrowing declined by 9%, while household savings remained flat. The mortgage market experienced growth of 1.9% in gross lending.
However, the flow of mortgage applications submitted to lenders fell considerably, and more households are borrowing over longer mortgage terms due to affordability constraints.
The average term for a first-time buyer loan is now around 31 years. Interest rate rises and cost-of-living pressures also led to a modest rise in the number of people in arrears.
Nevertheless, the range and extent of mortgage forbearance available from lenders have helped to keep arrears low.
Eric Leenders, managing director of personal finance at UK Finance, said that the market remains steady and that lenders are looking to help anyone who is worried about their mortgage, loan, or credit card payments.
Leenders added: “Looking ahead, we expect a softer market compared with the past two years as cost pressures weigh on households, although refinancing levels will be robust due to the 1.8 million fixed rate deals scheduled to end this year.
“At the same time, consumers are changing the way they spend their money, moving away from luxury spending to second-hand shopping.
“As cost of living pressures persist throughout this year, many people may need to draw upon their savings to help with their bills. Lenders are looking to help anyone who is worried about their mortgage, loan or credit card payments.
“Those worried about their finances should speak to their lender as soon as possible to discuss the options available.”
Krishnapriya Banerjee, a managing director in Accenture’s UK banking industry group, added: “A healthy mortgage market has historically been crucial to a healthy banking market, and the significant drop in mortgage applications late last year will have lenders keeping a watchful eye on the sector moving forward.
“With affordability stretched by a combination of higher rates and house prices, a growing number of households are seeking longer mortgage terms – with the average term for a first-time buyer loan now around 31 years.
“To help households, banks can provide the right mix of financial support and digital services to boost financial literacy.”
