Increasing pressure on the housing market drove down activity in mortgage lending and led to changes in the market, new data out today shows.
According to UK Finance data, lending for house purchases in the second quarter stood around 30 per cent lower than the same period last year.
The industry body said this stemmed from “the significantly greater affordability challenges currently faced by borrowers”.
Rising interest rates have sent the cost of a mortgage skyrocketing, hitting a 15-year in July.
Although mortgage rates are slowly falling, they remain well above where they were in early 2021. Borrowers coming off fixed rate deals will have to pay hundreds of pounds more per month as a result.
Affordability concerns saw record numbers of borrowers choosing to refinance with their existing providers. Typically borrowers looking to switch to other lenders have to undergo a new affordability test.
84 per cent of remortgaging deals were internal transfers compared to an average of 77 per cent across 2022. April’s figure of 88 per cent was a record monthly high.
UK Finance analysed the impact of higher rates on customers refinancing internally, reassuring that customers would still have the breathing space to pay back their loans.
They said that while there would be “significant pressures” on household finances, customers typically retain “a decent level of wiggle room” after refinancing.
Eric Leenders, managing director of personal finance at UK Finance said that mortgages “continue to be largely affordable because of the ‘stress tests’ applied when the mortgage was originally taken out”.
The data also showed that consumers are seeking out better deals for their savings following months of pressure on banks for failing to pass through interest rate rises to their customers.
Deposits in easy access accounts fell by seven per cent year on year whereas deposits in notice accounts, which offer higher interest rates, grew by 23 per cent.
Household deposits more broadly continued to fall following the slight drop in the first quarter, the first time in at least a decade that household deposits had fallen. This trend likely reflected households running down savings to cover higher outgoings.