Household finances have seen a gradual improvement in Q2 of this year, according to UK Finance’s latest Household Finance Review.
The review found that mortgage borrowing in Q2 was up by 19% for first-time buyers (FTBs) and 15% for movers when compared with the same period last year.
However, this figure was still well below that of 2022 levels and applications have since tailed off.
Many borrowers are still taking out mortgages with longer terms than in the past, with more than one in five taking out loans with terms of 36 to 40 years in Q2.
In addition, the payment shock for customers reaching the end of their fixed rate deals and looking to refinance appears to have peaked at the end of last year.
And while customers’ new rates were typically 3% higher, they were still paying 1% below what their lender had calculated they could afford.
Consumer spending continued to be weak, apart from travel, while household savings levels started to rise again.
There were still few signs of an increased reliance on overdraft and credit card debt to meet outgoings.
Arrears cases stabilised in Q2, falling very slightly from 109,900 at the end of Q1 to 109,700.
Early arrears cases also fell, suggesting total arrears may fall again in Q3.
There were 1,620 mortgage repossessions in Q2, up 34% from the 1,210 in Q2 2023 but still substantially below pre-pandemic levels.
The rise is due to the courts continuing to work through their backlog of historic long-term cases from before the pandemic.
Eric Leenders, managing director of personal finance at UK Finance, said: “Whilst it’s encouraging that cost-of-living pressures easing meant some households were in a slightly better place financially in Q2 this year, it’s too early to say that the worst of the challenges facing households have passed.
“It’s particularly encouraging to see the numbers of households in mortgage arrears stabilising, and the ‘payments shock’ for those coming off fixed rate mortgage deals does seem to have peaked, with savings levels starting to rise again.
“However, we know this will not be the case for all households and it’s important to stress that anyone who might be struggling can reach out to their lender for support.”
