"Around 700,000 borrowers have come off their fixed rate deal in the first half of this year and likely found themselves on a much higher rate"
Lending for house purchases and external remortgaging remained weak in Q2 2023, impacted by affordability constraints and a reduction in house buying and selling activity, the latest data from UK Finance shows.
Its figures show that borrowing for house purchases saw a sharp fall at the start of the year and this continued in Q2 with activity down nearly a third compared with the same period in 2022. First-time buyer purchases and homemover purchases were down 28% and 30% respectively in Q2 2023 compared to the same period the year before.
Throughout 2022 UK Finance saw a rapid increase in the proportion of mortgage customers borrowing over a longer term in order to stretch their affordability. However, the levelling off of this trend in Q1 continued in Q2. It also saw typical income multiples and average loan-to-values start to fall back, favouring those with higher incomes and/or larger deposits.
Affordability constraints impacted some external remortgaging activity and resulted in internal product transfers being more popular. The second quarter saw 84% of remortgaging deals being internal product transfers and within that, April was a record monthly high at 88% – by comparison the average for 2022 as a whole was around 77%.
UK Finance has conducted analysis on borrowers that refinanced internally this year, looking at their new rate compared to the rates they were assessed against for affordability purposes when they previously took out their mortgage. It shows that while people are now paying materially higher rates, these rates are below the prior stress test rate. Therefore, while there are significant pressures on household finances at the moment, customers will typically retain a decent level of wiggle room in their budgets after refinancing.
It also shows that the underwriting standards operated by the mortgage industry and enshrined in FCA rules since 2014 are doing the job they were designed for, ensuring customers’ finances are resilient against even the significant payment shock many are now seeing.
Eric Leenders, managing director of personal finance at UK Finance, said: "Whilst the cost of living challenges have created acute hardship for many, we have also seen that other consumers were largely able to pay off their credit card bills and meet their monthly mortgage payments. Some have been dipping into their savings to help to pay the bills, whereas some of those with savings have moved their money to accounts with higher rates to maximise their income.
“Around 700,000 borrowers have come off their fixed rate deal in the first half of this year and likely found themselves on a much higher rate, which continue to be largely affordable because of the stress tests applied when the mortgage was originally taken out."
