A slump in mortgage lending during the last quarter of 2022 has been blamed on the aftermath of the Truss mini-budget, as the level of arrears crept up for the first time in nearly two years.
Figures released by the Financial Conduct Authority (FCA) show the value of new mortgage commitments fell 33.5 per cent compared to the previous quarter and 24.5 per cent lower year-on-year at £58.4bn.
Excluding the beginning of the Covid-19 pandemic and the immediate aftermath, this was the lowest level since the first three months of 2015 when stricter lending criteria was introduced.
Charlotte Nixon, mortgage expert at Quilter said: “new mortgage commitments dropped off a cliff towards the end of last year as the country reeled from the damage of the mini budget.”
Nixon said there was still reason for greater optimism in the mortgage market.
“After the troubling days following the mini budget, mortgage rates have dropped faster than originally anticipated and therefore there is a chance that this will help encourage more people to market and more people will be seeking a mortgage,” Nixon continued.
The FCA said mortgage arrears increased for the first time since the first quarter of 2021.
Over the quarter outstanding balances with arrears climbed up 4.6 per cent to £13.6bn; this represented a 1.3 per cent increase year-on-year.
The FCA defined arrears as the borrower failing to make payments equivalent to at least 1.5 per cent of the outstanding mortgage balance.
The proportion of arrears to outstanding mortgage balances crept up to 0.81 per cent, but it remained close to the historical low of 0.78 per cent in the third quarter of 2022.
Earlier this month, the FCA said in addition to the households already behind on payments, 356,000 mortgage borrowers could face payment difficulties by the end of June 2024.
Separate figures from the ONS released in March found that at the end of February and beginning of March almost a third of people found it difficult to pay their rent or mortgage.
The FCA has published guidelines on how firms should support borrowers in financial difficulty, suggesting lenders could extend mortgage terms or temporarily reduce monthly payments.
Sarah Coles, head of personal finance at Hargreaves Lansdown, commented “none of these are signs of imminent collapse in the housing market, but they are strong indications that weakness may well endure, and could leave some people particularly exposed.”