Latest data point to robust growth in advances and commitments, with nearly half of lending now at high LTI multiples
Mortgage activity significantly increased in the latest quarter, with the market recording a higher share of high loan-to-income (LTI) lending and stable arrears levels.
New figures from the Bank of England showed that the total stock of residential mortgage lending rose by 0.9% on the previous quarter to £1.73 trillion, 2.9% higher than a year earlier. Gross advances reached £80.4 billion, up 36.9% quarter on quarter and 22.7% year on year, representing the largest quarterly jump in new lending since the third quarter of 2020.
New mortgage commitments totalled £79.4 billion, an increase of 1.6% on the previous quarter and 20.3% higher than in the same quarter of 2023, taking new business volumes to their highest level since Q3 2022.
Risk metrics also shifted. Loans with a loan-to-value (LTV) ratio above 90% accounted for 7.4% of gross advances, up 0.3 percentage points on the quarter and 0.8 percentage points on the year. This is the highest proportion of above-90% LTV lending since the second quarter of 2008.
Source: Bank of England
High LTI lending increased notably. The share of advances to borrowers with high LTI ratios rose by 3.3 percentage points on the quarter to 44.7%, the largest quarterly rise since Q3 2020, although it remains 0.6 percentage points below the level recorded a year earlier.
Owner-occupier purchase lending strengthened. The share of gross advances for house purchase by owner occupiers climbed by 2.5 percentage points on the quarter to 58.6%. Despite this quarterly rise, the figure is still 5.8 percentage points lower than a year earlier. By contrast, remortgaging for owner occupation edged down by 0.4 percentage points to 28.6% of gross advances, but remains 5.8 percentage points above its share a year ago.
Arrears indicators improved slightly. The value of outstanding mortgage balances in arrears fell by 2.9% on the quarter to £20.6 billion, 5.8% lower than a year earlier. The share of total mortgage balances that are in arrears stayed unchanged on the quarter at 1.2%, 0.1 percentage points lower than a year earlier. New arrears cases accounted for 8.8% of all outstanding arrears balances, down 0.1 percentage points on the previous quarter and 0.9 percentage points year on year, and at their lowest level since the first quarter of 2022.
Commenting on the Q3 mortgage lending figures, Richard Pike (pictured right), chief sales and marketing officer at financial services software provider Phoebus, said the data show continued strength in new lending volumes and a robust borrower performance despite higher LTI exposure.
“These figures demonstrate the mortgage market was in rude health over the summer, with overall lending up for the seventh consecutive quarter,” Pike stated. “Gross advances saw the largest quarterly increase for five years as borrowers took advantage of falling rates following the Bank of England’s base rate cut in August.
“New mortgage commitments were also at their highest since Q3 2020, showing a strong pipeline for lenders for the rest of the year. Just under half of this lending (44.7%) was to borrowers with high loan-to-income ratio as mortgage companies offer more low deposit products. This is opening the possibility of home ownership to more people and stimulating market activity but comes with higher risk.
“The fact that arrears rates are continuing to fall suggests that lenders are getting the balance right here, and demonstrates the resilience of households in the face of cost-of-living pressures. It will be interesting to see next quarter’s figures when we’ll see how the uncertainty leading up to the Budget affected borrower behaviour.”
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