The Bank of England has released its Q2 2023 Mortgage Lenders and Administrators Statistics, showing varied trends across the UK mortgage sector.
The outstanding value of all residential mortgage loans was £1,655.5bn at the end of Q2 2023, a minor 0.4% increase from last year. This also marked the largest quarterly decrease since 2007.
Gross mortgage advances for the quarter were £52.4bn, down £6.3bn from the last quarter and a 32.8% decrease from Q2 2022. New mortgage commitments increased to £61.7bn, up 26.2% from the previous quarter but still 26.6% lower than the same period last year.
Interest rates on mortgage advances closely followed the Bank Rate, with 96.1% having rates less than 2% above it. This is the highest since Q3 2007 and up 4.8 percentage points year-over-year.
Loan-to-value (LTV) ratios remained stable at 4.4% for loans exceeding 90% LTV. High loan-to-income (LTI) lending increased to 45.3%, up 1.6 percentage points from the last quarter.
The proportion of mortgages for house purchase increased to 54.0%, while remortgages for owner occupation rose to 32.0%. Buy-to-let purposes decreased to 8.1%, the lowest since Q4 2010.
Mortgage arrears increased notably. Outstanding balances with arrears rose by 13.0% over the quarter and 28.8% year-over-year, reaching £16.9bn. These now make up 1.02% of all outstanding mortgage balances.
Reaction
Jamie Lennox, director at Dimora Mortgages:
“This data makes for bleak reading, especially given that much of the damage of 14 consecutive base rate increases has yet to filter through. The percentage of arrears in 12-18 months’ time when more people have come off their ultra-low rates could be dramatically higher. The Bank of England runs the real risk of overcooking the base rate increases with long-term damage to the housing market and the finances of millions.”
Riz Malik, founder & director at R3 Mortgages:
“This horrendous and distressing data was always on the cards. The swift escalation in rates was bound to significantly impact default rates, and it’s likely the situation will deteriorate further. This is the kind of data the Government would prefer not to see approaching a General Election. Yet, given their minimal intervention, they have only themselves to blame.”
Lewis Shaw, owner and mortgage expert at Shaw Financial Services:
“The speed at which mortgage arrears are increasing is terrifying and should give cause to pause at the next Bank of England interest rate meeting. This is dire data, and we know that it’s about to get an awful lot worse with 1.6m mortgage holders due to renew over the next twelve months at significantly higher rates than anyone has been used to for well over a decade.
“We’re still at the thin end of the wedge, so unless we have a change of direction from Andrew Bailey, we’re about to see a mortgage meltdown for thousands of households that will ripple through the property market for years to come. If this isn’t the canary in the coal mine, I don’t know what is.”
Kundan Bhaduri, property developer and portfolio landlord at The Kushman Group:
“Global economic uncertainty and lingering effects of COVID-19 have left families grappling with financial challenges and the BoE data reflects that. Job insecurity, wage stagnation and rising living costs have put additional strain on household budgets.
“While interest rates remained historically low for well over a decade, a sharp increase of 5000%+ of the base rate has had a significant impact on mortgage payments for a growing number of borrowers. Those with variable rate mortgages have found that they have no other choice but to sell up.
“Skyrocketing house prices have also made things difficult in the past two years. As a result, many took on larger mortgages relative to their income, making them more vulnerable to financial shocks and arrears. There’s also the lingering effect of mortgage holidays from the Covid era many are grappling with.
“Many borrowers deferred their mortgage payments, accumulating interest arrears that are now coming due as these support measures wind down.”
Justin Moy, managing director at EHF Mortgages:
“The effect of higher mortgage rates is just starting to reflect heavily in the Bank of England data, with significant increases in arrears, both in pound value and cases, and we still have significant numbers of borrowers yet to move to their new rates before the end of the year.
“The Mortgage Charter does have some benefits for short-term support, but for many this is not enough to ride the high rates and increased cost of payments.
“The Government really needs to look to extend this support if the Bank of England are already on record suggesting this will take more time to resolve than first thought. Much of this data will have a 3-6 month time lag given the pipeline of applications yet to complete, but these signs are worrying and the borrowers need intervention quickly.”
Graham Taylor, managing director at Hudson Rose:
“There is no way to spin this, it does not make pleasant reading. The fear has always been that the Bank of England has moved the rate too high and too fast and many more families will likely be affected as they come off their historically low fixed rates.vThe sting in the tail is, due to the ONS miscalculation, the economy was perhaps more resilient to taking a base rate rise earlier, which could have helped cool the economy before it started to run too hot and eased the need for such a forceful Bank response.”
Darryl Dhoffer, mortgage expert at The Mortgage Expert:
“So, the plans outlined by the Government and the Bank Of England to draw down inflation, are now having these tragic results in arrears. This has got to stop, and both the Government and the Bank Of England, need to be held accountable for their actions. Forecasting a stat on paper is one thing, but living the experience for already hard-pushed consumers, is tragic to say the least.
“These arrears will continue for months if not years ahead, unless both the Monetary Policy Committee and the Government, work closer together, to look at other taxation options and benefit schemes, to alleviate the pressure that households are experiencing – just using Bank Of England base rate rises, will lead to further pain and misery, and will lead to a UK wide recession that we have never seen before.”
Gary Bush, financial adviser at MortgageShop.com:
“This arrears news is saddening but expected when looking at the speed of increase of the Bank of England base rate. Anyone experiencing problems with making their mortgage and other payments needs to consult with a suitably qualified advice firm who can step in and assist in these circumstances. Account holders who don’t adequately communicate with their lenders experience worse outcomes.”
Elliott Culley, director at Switch Mortgage Finance:
“Unfortunately, this is no big surprise. The cost of living and the increase in mortgage costs for some borrowers will be too much and arrears were always likely. Hopefully, we will see an end to base rate rises which have fuelled this increase. However, I do think we still have a couple of increases to go. The Mortgage Charter can help some borrowers, but only for a short period of time, so won’t fix this issue.”
Ranald Mitchell, director at Charwin Private Clients:
“This is a telling sign that people are struggling. Big jumps in arrears figures as mortgage rates, inflation and the costs of living all take their toll. There is likely worse to come with unexpired fixed-rate products propping up many households will come to an end, and many of these people will not be able to withstand the payment shock. Those who have the opportunity to prepare for fixed rate expiry would be well served to do so well in advance.”
Imran Khan, co-founder & CEO at PropertyLoop:
“The surge in arrears is a stark indicator of the financial pinch many are facing. Homeowners and landlords alike are grappling with soaring interest rates and increased costs, feeling the bite in real time.
“Tenant arrears are climbing, especially in London, as the knock-on effect becomes palpable. We’ve not yet seen the full impact of rising interest rates; it typically takes eight to nine months for the economy to show the scars.
“With 350,000 people per quarter coming off fixed rates—most being buy-to-let landlords—this is a ticking time bomb. As rates potentially hit 6% or 7%, many will find themselves in an untenable position. The real test of our economic resilience will reveal itself in 2024. Expect to see a spike in repossessions and a deeper strain on the economy in the next 18 to 24 months.”
Graham Cox, founder at Self Employed Mortgage Hub:
“These are truly shocking numbers, and the most worrying part is we’re not even close to being through the worst yet, as there are still millions of households who need to refinance their mortgage over the next year or two.
“Andrew Bailey and the Bank of England should hang their heads in shame. Having been too late and too slow in raising interest rates, they’ve had to raise them higher than necessary. They need to cut immediately, as it’s clear we’re heading for a sharp recession that will kick inflation into touch in short order.”
Scott West, director at Propertyze Consulting Limited:
“Numbers without context can have a misleading narrative. Russia’s invasion of Ukraine, Brexit and Covid have all contributed heavily to the UK’s current inflation situation. With the current downward inflation trend, the numbers are not so worrying. The value of mortgages in arrears has increased to its highest levels since 2016. The inflationary contribution to this is an important factor.
“The average house price in 2016 was £218,000. It is now £285,000. That in itself is a 30% increase. It stands to reason that the average mortgage balance across the UK will have proportionately increased.
“With the UK inflation rate being so high currently, these larger mortgages are also facing significantly higher rates. The arrears are going to appear considerably larger as a monetary figure when compared to 2016. The loan balances with arrears of 1.02%, whilst increased, is not an alarming figure when looking historically. In 2009 this number was around 3.4%.”
Gareth Lewis, managing director of property lender MT Finance:
“It’s a positive to see that new mortgage commitments picked up quarter-on-quarter suggesting borrowers may have paused at the start of the year to see how things would pan out but are now proceeding.
“While mortgage rates have increased from all-time lows, they are still at affordable levels although there has been some hesitancy to buy while there is uncertainty around where they might peak. As we’ve said for some time now, we need stability to allow consumers to gain confidence.
“Reassuringly, the evidence suggests that consumers are not over-stretching themselves, but remaining cautious and in some cases still waiting to see what happens. Once rates have plateaued, this will make decision-making easier and inspire more confidence.“
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Encouragingly, new mortgage commitments – lending agreed to be advanced in coming months – picked up in Q2, 26.2% higher than Q1and the first increase and highest value since the third quarter of 2022, indicating there are still those keen to move who are getting on with it.
“Even though borrowers are paying more for their mortgages, this is not putting them off as they tighten their belts and absorb the higher cost of borrowing. The good news is that mortgage pricing continues its downwards trend, even though another base rate rise is expected next week.
“Buy-to-let lending dipped, representing 8.1% of gross advances, the lowest since Q4 2010. This is unsurprising given the tax and regulatory changes which have hit the sector hard, although experienced investors continue to seek out opportunities and expand their portfolios.”
