New UK mortgage commitments rise despite cost of living crisis

·Reporter
·3-min read
The BoE's quarterly report is aggregated from data on mortgage lending activities provided by around 340 lenders. Photo: Daniel Leal-Olivas/AFP via Getty
The Bank of England's quarterly report is aggregated from data on mortgage lending activities provided by around 340 lenders. Photo: Daniel Leal-Olivas/AFP via Getty

New mortgage commitments in the UK rose 6.7% to £82.5bn in the first quarter of this year, compared to the previous quarter, despite the cost of living squeeze gripping households.

According to the Bank of England’s (BoE) mortgage lenders and administrator return (MLAR), this was 6.6% greater than a year earlier.

The data also revealed that the outstanding value of all UK residential mortgage loans stood at £1.63bn at the end of the period — 4.4% higher than a year before.

Meanwhile, the value of gross mortgage advances in Q1 was £76.9bn, this was £6.7bn greater than the previous quarter, but 7.5% lower than in 2021.

The quarterly report is aggregated from data on mortgage lending activities provided by around 340 lenders.

Gross mortgage advances refers to the total value of residential mortgage loans advanced by societies in the period, including loans for house purchase, further advances, and remortgages.

Chart: Bank of England
Chart: Bank of England

However, experts warn that the sharp cost of living squeeze, and the rise in UK interest rates, could now be dampening the market, with potential house buyers more nervous about taking on debt.

Karen Noye, mortgage expert at Quilter, said: "The value of new mortgage commitments also grew considerably in Q1 2022 to £82.5bn, up 6.7% on the previous quarter and 6.6% compared to the previous year.

"Given this data is from Q1 alone, this is likely as a result of people pushing to buy while the Bank of England interest rates were still relatively low and cheap mortgage deals were still on the shelves.

"Throughout the rest of the year, we are likely to see mortgage lending drop as more people are priced out of the market by the rising cost of living and BoE interest rate hikes, as well as being put off by the continuing economic uncertainty."

Threadneedle Street hiked UK interest rates from 0.75% to 1% in May, meaning that the share of gross advances with rates less than 2% above bank rate was 85.5%, up 26.5 percentage points than a year ago, and the highest seen since the Q3 2008.

"The increase was mostly driven by the 50 basis points increase in Bank rate across the quarter, rather than any significant change in mortgage interest rates," the central bank said.

The BoE is expected to raise interest rates in June, as well as several times this year, which will affect mortgage lending going forward. It will make its next monetary policy announcement on 16 June.

Chart: Bank of England
Chart: Bank of England

The report on Tuesday also revealed that the share of mortgages advanced in the fourth quarter with loan to value (LTV) ratios exceeding 90% came in at 3.9%.

The share for house purchase for owner occupation was at 50.7%, down 2.3 percentage points on the previous quarter, and down 13.4 percentage points from Q1 2021.

The share of gross advances for remortgages for owner occupation came in at 29% — an increase of 11 percentage points since the first quarter of last year, and up 0.8 percentage points on Q4 2021.

The value of outstanding balances with arrears decreased by 11% over the quarter to £13.3bn, and now accounts for 0.82% of outstanding mortgage balances, the lowest since recording began in 2007.

Read more: UK mortgage approvals fall to lowest level since June 2020

Last month, separate figures from the BoE showed that the number of UK mortgages approved by lenders dropped to its lowest level since June last year, in a sign that the housing market could be cooling amid rising inflation and the cost of living squeeze.

The figures showed there were 65,974 mortgages approved in April, down from 69,531 the month before.

Watch: Will UK house prices ever fall?