House purchase lending dropped sharply in Q4 following the end of the Stamp Duty holiday, but demand looks to be relatively resilient, according to the latest UK Finance Household Finance Review.
The trade body said demand would continue to be underpinned by longer-term changes in life and work patterns as the country emerges from the worst of the pandemic.
UK Finance said the same factors continue to drive an increase in equity withdrawal when remortgaging for reasons of home improvement.
But it warned that while the rising cost of living has yet to impact it is likely to bear down on effective demand for mortgages, particularly amongst lower income households.
Finally, UK Finance revealed that mortgage arrears are still trending down and as yet there are no early signs of problems in unsecured borrowing. However, payments are likely to come under greater pressure through 2022 as the cost-of-living squeeze weighs more heavily.
Lee Hopley, director of economic insight and research at UK Finance, said: “Although household spending and
borrowing were more subdued at the end of last year, activity levels continued to return to pre-pandemic norms.
“House purchase numbers fell in the fourth quarter following the end of the stamp duty holiday, although there are signs of continued demand for more space as working from home becomes a part of regular life.
Looking ahead, the rising cost of living will likely affect appetite to buy or move home this year.
“It is encouraging that arrears are still trending down, with no early signs yet of any difficulties in repaying unsecured debts.
“However, while households look to be in a good position regarding payments now, we expect some increase in arrears through the year as the rising cost of living starts to bite.
“Any customers worried about meeting their loan repayments should speak to their lender as soon as possible to discuss the best options for them.”
Dave Harris, CEO, more2life, added:c“2021 was fraught with economic challenges and the last months of the year were no exception, with Q4 bringing significant increases to energy bills, petrol prices and seeing interest rates rise.
“Consumer credit borrowing has naturally accelerated in line with the higher cost of living, with the energy crisis putting a particular strain on household finances.
“Inflation shows no signs of easing, and so consumer spending power is set to take a further hit this year.
“The rocketing cost of living coincides with record house price inflation that has led many older homeowners to use equity release to boost their retirement income.
“We saw more than £12m released each day through equity release in 2021 as homeowners tapped into housing equity. With reports suggesting that the value of the average UK property has risen by almost £30,000 in the last year alone, this is a great time for the over-55s to consider if later life lending could boost their financial security and peace of mind.”
