New house purchase lending down 48%

New house purchase lending was down 48% YoY for Q2 2020 compared to Q2 2019, according to latest figures published by UK Finance in its Household Finance Review 2020.

As a result of the effects of COVID-19 on the market, homemover numbers fell by 61% YoY in April alone, compared to 53% for first-time buyers (FTBs) and 54% for buy-to-let (BTL) purchases.

UK Finance said: “Looking beyond Q2, our forward-looking data on mortgage applications suggests that, with the English housing market reopening in May, we can expect a strong initial recovery in Q3, with those transactions put on hold now able to complete. Q2 application volumes were in fact slightly up on the same quarter in 2019, fuelled by the backlog of activity from those transactions that were put on hold in the early weeks of lockdown.”

In total, lenders granted over two million deferrals to mortgage customers, the vast majority of which were in place by the end of April. However, following the end of June, when most of the initial wave of three-month deferrals came to an end and for the most part customers resumed payments, the number is now considerably lower. Although over 250,000 more deferrals have been granted since then, the total number in force now stands at 731,000.

As a result of this industry support for borrowers affected by the pandemic, mortgage arrears have been contained and the figure of 74,000 mortgages in arrears at the end of Q2 was only 2% higher than the number in Q1 and 3% below the number in Q2 2019.

Meanwhile, the moratorium on court possessions activity has meant that for the whole of Q2 and through to the end of Q3, the only mortgaged property possessions are those at the borrower’s request. In Q2 there were just 230 possessions, 88% fewer than the number in Q2 2019.

As part of its review into household finances, UK Finance also outlined how credit card borrowing fell by 40% in Q2, compared to Q2 2019, following a 12% annual decline in Q1.

With many regular consumer spending activities severely restricted, salaries maintained or supported on furlough and consumers more wary of their ongoing financial positions, Q2 also saw a sharp increase in the amounts held in deposit accounts, which rose by 5% compared to Q1.  Payment deferrals on credit card and personal loan accounts, together with a free overdraft buffer applied to primary current accounts all helped consumers to manage, or even pay off, their unsecured debt.

Bluestone Mortgages managing director Steve Seal said: “Despite the second quarter of the year seeing a significant drop in mortgage lending, the housing market continues to recover from the impact of the COVID-19 crisis. Lenders and advisers are working hard to encourage market activity, which is helping mortgage approvals return to pre-COVID levels.

“However, although it is promising to see signs of recovery across the market, many households are continuing to struggle with the financial impacts of the pandemic. For instance, one in nine people have reported falling behind on their household bills at some point during the crisis. Something like this could end up damaging their credit score and, ultimately, their lending prospects when they come to remortgage or move home later on. In turn, this could create larger groups of underserved consumers who are in a worse financial position than they were pre-crisis and are unsure of where to turn when it comes to accessing finance in the future.

“Advice will be key for these borrowers. Advisers can steer borrowers in the right direction, taking into account their current situation and ensuring they are well-informed on the specialist solutions that are available. This will help ensure that the thousands of consumers who have taken a hit during COVID-19 and require tailored lending solutions in the future are fully supported.”

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