The proportion of lending to borrowers with a high loan to income (LTI) ratio has fallen to its lowest level since Q1 2016, according to the latest Mortgage Lenders and Administrators Statistics (MLAR) submitted to the FCA by lenders.
MLAR is a quarterly statistical release aggregated from data on mortgage lending activities provided by around 340 regulated mortgage lenders and administrators.
The data for Q1 2024 shows that high LTI lending decreased by 3.0pp from the previous quarter to 39.7%, and was 4.1pp lower than a year earlier.
The outstanding value of all residential mortgage loans decreased by 0.1% from the previous quarter to £1,654.9 billion, and was 1.4% lower annually.
More positively, the value of new mortgage commitments increased by 30.8% from the previous quarter to £60.1 billion, and was 31.2% greater than a year earlier.
The value of gross mortgage advances decreased by 2.6% from the previous quarter to £51.6 billion, the lowest since Q2 2020, and was 12.0% lower than Q1 2023.
The share of gross advances for owner occupation fell by 5.1pp from the previous quarter to 54.6%, but was 4.3pp higher than a yea ago.
The share of residential remortgage advances rose by 3.5pp on a quarterly basis to 31.8%, but remained 2.9pp lower than a year earlier.
The proportion of buy-to-let advances (covering house purchase, remortgage and further advance) increased by 1.2pp from the previous quarter to 8.3%, the first increase since Q1 2022, but remained 1.6pp lower than in Q1 2023.
Arrears
New arrears cases decreased by 2.0pp from the previous quarter to 11.4% of the total outstanding balances with arrears, the lowest since Q3 2022, and were 4.7pp lower than a year earlier.
However, the value of outstanding mortgage balances with arrears increased by 4.2% from the previous quarter, to £21.3 billion, and was 44.5% higher than a year earlier. The proportion of the total loan balances with arrears, relative to all outstanding mortgage balances, increased on the quarter from 1.23% to 1.28%, the highest since Q4 2016.
Abigail Fernandes, analyst at Pepper Advantage, commented: "Mortgage arrears balances are still high but growth is slowing, according to the Bank of England this morning. This follows arrears hitting a seven-year high in the final quarter of 2023.
“The Bank’s latest report would appear to complement our recent findings that mortgage arrears growth is slowing to its lowest rate since September 2022’s Mini-Budget and the mortgage market is showing some signs of improvement, with new commitments up significantly.
“However, the state of the housing and mortgage markets is not the same across the whole of the UK, with disparity between regions. We found that the arrears growth rate increased during Q1 for both the North East and North West regions while it decreased in other areas, including the South East and Greater London.
“Even with green shoots appearing, the economic picture remains complex, and certain groups remain under pressure and will likely require support for some time.”
Peter Stimson, head of product at MPowered Mortgages, said: “While there’s more than a hint of the rear-view mirror about the FCA’s data, it does highlight the pent-up demand for mortgages.
“Levels of new lending grew in the first quarter of this year, but are still far below the numbers seen in 2022 when interest rates first started to rise.
“New mortgage commitments surged by 30.8% compared to the final quarter of 2023 and were up 31.2% on this time last year.
“This jump in demand can be traced back to the flurry of mortgage rate reductions made by lenders at the start of 2024 in response to falling swap rates, which made borrowing cheaper and kick-started demand from many of the would-be homebuyers who sat out 2023.
“However the cost of borrowing has risen steadily since then, leading to a cooling of demand from movers and first-time buyers. Remortgages once again account for nearly a third of new lending to owner-occupiers.
“Whilst the Conservative Party manifesto launched today contains a number of measures designed to make it easier for people to buy their first home, the key lever – interest rates – is outside Government control.
“Today’s uptick in unemployment will add further weight to calls for the Bank of England to start cutting Base Rate as soon as possible, but few expect rate cuts to come before August at the earliest.
“Until that happens, lenders will continue to compete on rate in very narrow bands, and progress on both new lending and home sales is likely to remain subdued at best.”
Nathan Emerson, CEO at Propertymark, added: “It is good to see that the value of new mortgage commitments has increased, and that the share of gross mortgage advances for buy-to-let purposes has seen growth. These figures demonstrate that there is positive economic news out there despite elevated interest rates. Propertymark remain positive overall economic activity in the housing market will further increase once the Bank of England feels ready to start cutting interest rates and when we have more certainty about housing policies following the election of a new government next month.”
