Gross mortgage advances decreased by 24.2% to £58.8 billion in Q2 compared to the previous quarter, the lowest since the first quarter of 2024 and 2.4% lower than a year earlier, according to the latest Mortgage Lenders and Administrators Return from the Bank of England.
However, the value of new mortgage commitments (lending agreed to be advanced in the coming months) increased by 14.6% from the previous quarter to £78.2 billion. This was the highest increase since Q3 2022 and up 16.8% on the previous year.
The share of gross mortgage advances with loan-to-value (LTV) ratios exceeding 90% rose by 0.4 percentage points from the previous quarter to 7.1%, the highest share since 2008 Q2 and 1.1 percentage points higher than the previous year.
The proportion of lending to borrowers with a high loan to income (LTI) ratio decreased by 3.7 percentage points from the previous quarter to 41.5%, the largest decrease since 2023 Q1 and 1.0 percentage points lower than last year.
Remortgages grew
Remortgages also grew, with the share of gross advances for remortgages for owner occupation increasing by 7.7 percentage points from the previous quarter to 29.0%, the highest share since 2024 Q1, and 0.4 percentage points higher than a year earlier.
New arrears cases (as a proportion of total outstanding balances with arrears) decreased by 0.4 percentage points from the previous quarter to 8.8%, the lowest since 2022 Q1.
Simon Gammon, managing partner, Knight Frank Finance, says: “Mortgage lending remains subdued, with gross advances down sharply in the last quarter. But the forward-looking indicators tell a different story. New commitments are rising strongly, and the share of high loan-to-value lending has climbed to its highest level since 2008.”
“That suggests lenders are targeting the buoyant first-time buyer market, which has become key to gaining market share. Interestingly, lending at higher loan-to-income ratios fell, and this is where some larger lenders are seeking to gain an edge on competitors. HSBC, for example, has moved to 5.5 times salary for first-time buyers – showing that competition is robust even as overall volumes remain weak.”
Further movement on interest rates required
Martyn Smith, CEO, Black & White Bridging, agrees that the new figures are encouraging, but he says further interest rate cuts are required. “Today’s MLAR data paints a picture of increasing buyer confidence. Although the value of gross mortgage advances is down on last quarter, new mortgage commitments and remortgages are on the up, a clear sign of increased borrower activity, likely spurred on by the recent base rate cut,” he says.
Smith continues: “We can see evidence here of increasing appetite even amongst those with smaller deposits as the share of advances with LTV ratios exceeding 90% rose again to 7.1%, the highest figures since 2008. Of course, this is also reliant on increased risk-taking from lenders, which is clearly necessary with rising inflation putting pressure on the cost of living and a buyer’s capacity to save.”
“Although it would hit savings, further interest rate cuts are the only way to increase buyer confidence further and keep up borrower momentum. Lenders will need to remain agile and flexible to those with lower up-front deposits, at least until the inflation versus base rate balance settles.”
