Mortgage lending predicted to fall in 2024

Lending for house purchases is expected to fall by 8% next year, according to a new report.

UK Finance, the trade association for the UK banking and financial services sector, said that high interest rates and household costs will continue to make it hard for buyers to pass affordability tests in 2024.

The report predicted that mortgage lending for house purchases in the UK would fall from £130bn in 2023 to £120bn next year.

At the same time, repossessions — although remaining “incredibly low” by historic comparisons — are expected to go up from 4,400 this year to around 5,100 in 2024.

James Tatch, head of analytics at UK Finance, said that 2023 was a “challenging year” for both prospective and existing mortgage borrowers, with affordability pressures from higher interest rates and increased living costs as well as house prices still at elevated levels relative to income.

However, the main pressures on affordability appear to be peaking and the lending outlook is brighter for 2025.

“By 2025, the combination of wage growth, softer house prices and inflation and interest rates falling back somewhat will see a gradual recovery in lending activity as affordability improves,” UK Finance said.

The Bank of England’s final interest rate decision of the year will be announced on Thursday.

In November, interest rates were held at 5.25% for the second consecutive month. Rates are expected to remain at that level for some time, with a reduction not anticipated until the second half of next year.

Average five-year mortgage rate falls below 6%

The average rate on a five-year fixed mortgage has dropped below 6% for the first time in nearly three months.

Financial information service Moneyfacts said that as of Thursday, the typical rate stood at 5.99%.

Mortgage rates were driven up by 14 consecutive interest rate hikes by the Bank of England’s Monetary Policy Committee (MPC).

The average rate for a two-year fixed mortgage hit 6% in the middle of June 2023, while the average five-year deal crossed this threshold in early July. Both continued to rise over subsequent months.

At its last meeting, the MPC voted to keep the base rate unchanged at 5.25% and this — together with positive inflation data — has given lenders confidence to cut rates.

The average rate for a two-year deal has also been coming down and currently sits at 6.50%.

Nationwide, HSBC and NatWest are among the major lenders that have cut the cost of their mortgage deals.

Remortgaging activity jumps 22% in June

Mortgage lending in the UK was 22% higher in June, with remortgage activity rising by over a third month-on-month and year-on-year, the Council of Mortgage Lenders (CML) revealed on Tuesday.

The rise in remortgage activity among home-owners is said to reflect the possibility that rates will increase, so borrowers are looking for competitively-priced mortgage deals ahead of higher mortgage rates.

There was also a significant month-on-month increase in first-time buyer activity compared to May this year, however this activity saw little change when compared to June 2014.

Lending to home movers also substantially increased in June, with CML’s figures showing monthly increases and slight yearly increases in volume and value. Home-owner remortgage activity rose by over a third month-on-month and year-on-year.

Buy-to-let activity also continues to grow year-on-year and month-on-month, mainly as a result of by buy-to-let remortgage activity.

During the second quarter 2015, home-owner remortgage activity was higher in volume and value compared to the first quarter of the year and the second quarter of 2014. First-time buyers also increased in number and amount, advancing by over 20%, but lending declined year-on-year compared to the same quarter in 2014, while home mover lending figures showed a quarter-on-quarter increase but year-on-year decline. 

Director general of the CML, Paul Smee, said: “Notable this month is the uptick in remortgage activity among home-owners, perhaps reflecting an increased desire to lock into competitively-priced mortgage deals in advance of any rise in rates. It is likely that people are now beginning to feel a rate rise is a realistic prospect, and not just a distant theoretical possibility.

“After a slower than expected start to the year, lending now appears to be picking up as we expected, and in line with our recently revised forecasts.”

CML is the main trade body representing UK mortgage lenders. Data for its latest Mortgage Survey was sourced from CML’s membership, which includes banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK.

According to CML, there are 11.1 million mortgages in the UK, with loans worth over £1.3trn.

Bank of England reports continued rise in mortgage approvals

Further signs are emerging of a recovery in the UK housing market, as the Bank of England said today that mortgage approvals rose again in December 2012.

The number of loan approvals for house purchases climbed to an 11-month high of 55,785, increasing for the fifth month in a row.

Analysts believe that the revival in the market is an indicator that the government’s Funding for Lending Scheme (FLS) has been successful in boosting lending. The scheme was launched at the start of August 2012 and was designed to encourage lending to households and growing businesses by allowing financial institutions to borrow at low interest rates.

Since the launch of FLS the number of mortgages on the market has increased and lenders have been reducing their mortgage rates, according to personal finance website This is Money.

Separate figures released today by the Building Societies Association show that, over the whole of 2012, mortgage lending by building societies and other mutual lenders grew to a total of GBP30.7bn. This is a 30% increase compared to the prior year.

Mutuals also represented a larger share of the overall lending market, taking a 22% market share of total new lending in the year, up from 17% in 2011. In December, total lending by mutuals increased to GBP2.4bn from GBP2.1bn a year earlier.

Adrian Coles, director-general of the Building Societies Association, said that mutual lenders such as building societies are likely to continue to play a prominent role in the mortgage market in 2013 and he pointed out that more than half of the 35 firms that were signed up to the Funding for Lending Scheme in December are mutuals.

Last week the Council of Mortgage Lenders (CML) reported that gross mortgage lending in December reached an estimated GBP11.7bn, taking the estimated total for the year to GBP143bn, up from GBP141bn in 2011. In the coming year the organisation forecasts that gross lending will reach GBP156bn.

The CML represents banks, building societies and other lenders who provide a combined 95% of all residential mortgage lending in the UK.

US banks see higher earnings on capital market activity, mortgage refinancing

Increased capital market activity drove stronger earnings and increased profitability for major US banks in the third quarter of last year, according to ratings agency Fitch Ratings.

Fitch said that strong debt issuance, tighter fixed income spreads, and an equity market rally fueled a healthy rebound in capital markets revenues from depressed levels in Q3 ’11 and subdued activity in the prior quarter.

Core profitability for the major banks was slightly improved and better than expected during the quarter.

The mortgage refinance boom further contributed to stronger revenues for the quarter. This reflects the effects of theFederal Reserve’s quantitative easing measures, which have brought long-term rates down to very low levels.

Although refinance activity will continue into 2013, Fitch expects that it will level off and thus current levels are not considered sustainable.

The larger US banks began disclosure of expected Basel III Tier I common ratios in Q3. Although this guidance is not finalized, Fitch expects that most rated banks will be in compliance ahead of full implementation.