"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. "
- Eric Leenders, managing director of personal finance at UK Finance
Q2 saw a return to annual growth in lending, the latest data from UK Finance shows, with loans to first-time buyers up 19% and loans to those moving home up 15% compared to Q2 last year.
The rise was driven by the spike in mortgage applications seen late last year and early this year. However, lending is still around 16% lower than in 2022 and UK Finance says it has since seen mortgage applications tail off as house prices recovered, suggesting that growth "may not continue through to the end of the year".
The figures show that the trend of borrowing at longer terms remains higher than in the past. More than one in five first-time buyers took out loans with terms of 36 to 40 years during Q2. However, UK Finance's analysis of monthly payments versus incomes suggests that borrowers are increasingly using term stretch to get the mortgage size they need, rather than to manage their monthly payments.
Despite this trend, just 3% of homeowner mortgages on a ‘capital and interest’ basis are currently held by borrowers who are over 65.
Affordability challenges continue to affect refinancing, with external refinancing loans in Q2 falling 12% compared with a year earlier to 408,000. Internal product transfers, where an affordability assessment is not needed, accounted for 82% of Q2 refinancing.
Meanwhile, new analysis by UK Finance showed the increases in payments for borrowers reaching the end of their fixed rate deals appear to have peaked at the end of 2023. And while customers’ new rates were typically three percentage points higher, they were still paying one percentage point below what their lender had calculated they could afford.
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."
