Towards the end of last year as mortgage rates started to reduce, there was a noticeable uptick in the number of mortgage applications.
This suggested the market might see a recovery in the first half of 2024 as the applications followed through to completions.
However, any sustained recovery has yet to materialise as market expectations for a Base Rate reduction shift to later in the year; therefore, borrowing for house purchase in the first quarter was still down compared with Q1 2023.
For those who did secure a mortgage, the trend of borrowing at longer terms to reduce monthly repayments and help with affordability dipped slightly in Q1 but remained high, with 21 per cent of new first-time buyers (FTBs) extending terms over 35 years.
Most FTBs typically do not keep their mortgage over the full term because they move house or remortgage, and lenders will always conduct an affordability assessment to check that the customer can afford the mortgage – including if the term stretches into retirement. However, the trend of longer-term mortgages points to more entrenched affordability issues as costs and house prices remain high relative to incomes.
Affordability constraints are also changing the pattern of re-financing, with external lending falling 21 per cent compared to Q1 2023. But internal Product Transfers, where an affordability assessment is not needed, continued to be popular, growing nine per cent year-on-year.
Consumer spending, saving and borrowing
UK Finance data showed weak spending activity in Q1, particularly for household goods, but spending on travel rose at the start of the year.
We also saw a reverse to the fall in savings levels seen over 2023 during which households ran down their savings to help pay for day-to-day expenses. This increase in saving levels is likely driven by rising wages covering higher outgoings, although this will not be the case for all households.
For those who were able to put money into savings, the increase in deposits in notice accounts and cash ISAs continued in Q1 2024 to over £250 billion in March.
Meanwhile, overdraft debt continued to fall back in Q1 2024, and by March, was at its lowest level since August 1998, at £4.67 billion outstanding.
At the same time, credit card debt was ten per cent higher than in Q1 2023, in line with a broadly constant annual growth rate since the end of the pandemic. Within overall card debt, 50 per cent was interest-bearing in Q1 2024, a record low proportion since 1995, as consumers pay down their balances and manage their interest through Balance Transfers.
Mortgage arrears, possessions, and the help available
The number of mortgage customers in arrears grew to 110,150 in Q1 2024, but the rate of growth was modest – up from 107,250 cases in Q4 2023. Early arrears cases fell slightly in Q1 2024, indicating any increase in arrears next quarter will again be limited.
There were 1,470 mortgage repossessions in Q1 2024, below pre-pandemic levels. Responsible lending policies mean that relatively few households will fall into arrears, and possession is only ever a last resort. For anyone concerned about paying their mortgage, please contact your lender to discuss the help available. More information can be found via the Reach Out campaign, which launches its latest stage of advertising today.
Eric Leenders, Managing Director of Personal Finance at UK Finance, said: “Some households were in a better place financially in Q1 this year, but we are not out of the woods yet.
“Among the more positive signs, we can see that overdraft and interest-bearing credit card debt are at record lows, and many households have stopped using their savings to help with the rising cost of living.
“However, we know that this will not be the case across all households, and lenders want to support anyone who might be struggling. Cost of living pressures remain, and with 1.6 million mortgages due to come off fixed rates this year, there may be challenges ahead for some.
“If you are worried about your finances, your lender has help available – please contact them as soon as possible to discuss your options.”
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