Mortgage lending drops sharply as arrears rise

Consumer lending

Lenders made commitments on £51.5 billion of mortgages Q3, as per the BOE’s Mortgage Lenders and Administrators Statistics published on Tuesday

UK’s mortgage lenders reined in the pace of making new loans sharply in Q3 as arrears climbed, a further sign that the BoE’s series of interest rate hikes is slowing activity in the housing market.

Lenders made commitments on £51.5 billion of mortgages Q3, as per the BOE’s Mortgage Lenders and Administrators Statistics published on Tuesday. That was down 16.5 per cent on the earlier quarter and 41.4 per cent from a year ago.

The value of outstanding mortgage balances with arrears jumped 11.4 per cent on the previous quarter and 44 per cent on a year ago to £18.8 billion, the highest level since Q2 2015.

The data provides some indication that the Bank of England’s series of 14 successive rate hikes between December 2021 and August 2023 is filtering through to the real economy. As the nine-member Monetary Policy Committee (MPC) prepares to announce its latest rate decision on Thursday, with economists widely anticipating a further hold, it is still battling a historically tight labour market to bring inflation down from 4.6 per cent to the target of 2 per cent.

Even so, the Bank of England admitted last week that it expects fewer people to struggle repaying their mortgages than it originally thought, as the labour market has held strong. The housing market has also been stronger in 2023 than forecasted – while a number of economists anticipated a peak-to-trough decline in prices of 10 per cent, only nearly half of that has so far materialised as per Halifax and Nationwide Building Society’s measures.

Karen Noye, mortgage expert at Quilter, said the data “illustrate quite how much higher interest rates have sent the market into chaos”.

In spite of these scary figures house prices have yet to drop and, in fact, have recently been rebounding, she said. These green shoots may soon be killed off by a winter frost if rates rise again or if there is another economic shock, but for now house prices are remaining resilient.

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