Bird & Co examines the latest mortgage data from the Financial Conduct Authority (FCA), covering lending and administration trends up to Q4 2023. This analysis spans the past five years.
Since 2007, roughly 340 regulated mortgage lenders and administrators have submitted a Mortgage Lending and Administration Return (MLAR) quarterly to the FCA, offering insights into their activities.
The FCA data includes metrics like the outstanding value of residential loans, total gross advances by loan-to-value ratios, loan purposes, value of new commitments, and the proportion of mortgage loans exceeding the Bank of England's interest rate.
Conveyancers, essential in property transactions, rely on mortgage statistics to understand market dynamics. In this analysis, we provide a breakdown of the significant changes from the FCA data from 2022-23, as well as touching on telling trends from over the past 5 years.
We’ll also discuss why these statistics matter to both lenders and borrowers, as well as the economic and political factors influencing these market trends. Let’s delve in…
Key Mortgage Data Statistics 2023
Here's a breakdown of key findings and their implications, but first, some definitions:
Key Definitions
- Regulated loans are those on a property you are living in or are going to live in.
- Non-regulated loans are useful for corporate entities; properties you aren’t going to live in or individuals with unique circumstances that don’t fall into other categories.
- Securitised loans require collateral.
- Unsecuritised loans do not require collateral, but may have a higher interest rate.
- LTV is loan to value.
- House purchase advance means borrowing more money from your existing mortgage lender. Taking out a further advance is often used towards home improvements or for a deposit towards a second property purchase.
Value of Residential Loans to Individuals: A Decline in Commercial Entities in 2023
Key Stats
- Total non-regulated loans decreased for the first time in five years, with a 7% decline in both unsecuritised and securitised loans between 2022-23.
- Regulated loans saw a steady increase year on year, while non-regulated loans fluctuated, with decreases ranging from between 1-80% in every quarter in 2022-23.
Commentary
A decline in non-regulated loans could suggest lenders may be tightening their lending standards and may be becoming more risk-averse during periods of uncertainty or market volatility.
A decline in non-regulated loans could reflect lenders' caution in extending credit to borrowers who may not meet stringent lending criteria or who are perceived as higher-risk borrowers. With a huge shift towards home working, the decline in non-regulated loans could suggest lenders are seeing a shift in what a safe investment is, suggesting commercial property is no longer that.
With reports from April 2023 expressing a sharp decline a commercial property demand, it’s clear this trend carried on throughout the rest of the year and could continue into 2024.
Residential Loans to Individuals: Business Flows in 2023
This section of data provides a comprehensive view of the entire spectrum of lending activity for residential purposes, covering both regulated and non-regulated loans and their associated business processes and transactions.
The term "business flows" in this context refers to the movement or activity of these loans within the residential lending market. This includes factors such as the volume and value of loans originated, outstanding loan balances, repayments, defaults, and any other transactions or activities related to residential lending to individuals.
Key Stats
Balances outstanding increased annually from 2018 until 2022, followed by a significant 13% decrease in 2022-23, as shown here:
| 2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 |
3% | 5% | 9% | 8% | -13% |
The value lent out for ‘new commitments’ was less in 2023 than it was in 2022 for each quarter. The percentage difference between 2022 and 2023 was:
Q1 | Q2 | Q3 | Q4 |
-41% | -27% | -41% | -21% |
Commentary
New commitments refer to the total value of mortgage agreements entered into by lenders and borrowers during a specific period, regardless of whether the funds have been disbursed yet. It includes both new mortgages and additional borrowing agreed upon by borrowers.
Changes in housing market conditions, such as increasing home prices, tightening inventory, or rising interest rates, can impact the demand for new commitment loans. Higher home prices or limited housing supply may deter potential buyers from entering the market, resulting in fewer new mortgage agreements.
Alternatively, a decline in new commitments could stem from lenders becoming more selective in approving mortgage applications or may require larger down payments or higher credit scores from borrowers, reducing the pool of eligible borrowers and resulting in fewer new mortgage agreements.
Interest Rates in 2023
After yearly decreases from 2018, outstanding balances began to rise in 2022, with a 9% increase in 2021-22, and a 37% increase in 2022-23.
Potential factors influencing this reversal in the trend and contributing to this change could include shifts in interest rates, changes in economic conditions, alterations in consumer behaviour, or adjustments in lending practices.
The Bank of England suggest that having high interest rates is the best way to get back to low and stable inflation in the UK.
Types of Residential Loans to Individuals in 2023
Key Stats
- Single income loans decreased by 10% in 2022-23, the most significant change since 2018.
- Joint income loans increased by 7% between 2022-23, with consistently higher numbers compared to single income loans throughout 2023.
Commentary
A decrease in single income loans may indicate affordability challenges in the housing market, with fewer individuals able to meet the financial requirements of purchasing a home on a single income.
Meanwhile, there may be a preference among borrowers to opt for a joint income loan, as they may find it easier to qualify for higher loan amounts with multiple incomes, which may have led to a decrease in demand for single income loans.
The Nature of Loans to Individuals in 2023
Key Stats
- Loans to people with impaired credit history decreased by 4% between 2022-23, in contrast to a 9% increase the previous year.
- Interest-only loans saw the most substantial drop in 2022-23, declining by 21%.
Commentary
The 4% decrease in loans to people with impaired credit history in 2022-23, compared to the previous year's 9% increase, indicates one of two eventualities:
- Lenders may be more cautious in extending credit to individuals with impaired credit histories.
- Borrowers are experiencing improved financial situations, resulting in fewer loans with credit impairments.
The significant 21% decline in interest-only loans in 2022-23 indicates a shift in borrowing preferences away from interest-only financing. Interest-only loans allow borrowers to pay only the interest on the loan during the initial period, deferring principal payments.
The decrease in interest-only loans may suggest changing borrower preferences towards more traditional mortgage products, or lenders tightening standards for interest-only lending due to perceived risks.
House Purchase Advances to Individuals in 2023
Key Stats
- House purchase loans advances increase from 2018-2021, then decreased by 8% 2021-22 and 5% 2022-23.
- First-time buyer advances increased by 10% between 2022-23, consistently exceeding the quarterly average by 29-36%.
- Buy to let advances were between 21-38% less than the average each quarter, decreasing by 37% overall between 2022-23, compared to an increase of 10% the previous year.
- Remortgages witnessed a significant increase of 57% in 2022-23, the largest change over five years.
Commentary
Remortgaging/advancing on a mortgage allows homeowners to cash in on the value of the house, providing immediate cash in the bank that can be used for whatever purpose. A homeowner may do this for a number of reasons, including:
- To Secure a Better Interest Rate: one of the primary motivations for remortgaging is to secure a lower interest rate. This can result in reduced monthly mortgage payments and long-term savings on interest costs.
- To Release Equity: remortgaging/advances allows homeowners to release equity tied up in their property if the value of the house has increased. This can be used for various purposes, such as home improvements, debt consolidation, funding education, or other large expenses.
- To Change Mortgage Terms: some homeowners choose to remortgage to change the terms of their mortgage, such as switching from a variable rate to a fixed rate, or extending or shortening the mortgage term to better suit their financial situation or goals.
- To Consolidate Debt: remortgaging can be a means of consolidating existing debts, such as credit card debt or personal loans, into a single mortgage payment. This can potentially reduce overall monthly payments and simplify finances, although it may result in paying more interest over the long term if not managed carefully.
The decrease in house purchase loan advances between 2021-23, coupled with a rise in remortgage rates, suggests homeowners are exploring and favouring different lender options in order to secure the best terms possible for their mortgage payments, rather than sticking with their current lenders. These figures coincide with the dramatic rise in mortgage interest rates we saw across 2022 onwards, which are only now declining, suggesting savvy homeowners looking to get the best deal.
Comparatively, despite the overall average of advances declining, we witnessed a 10% increase in first-time buyer advances between 2022-23, consistently exceeding the quarterly average by 29-36%. This could suggest first time buyers may be requiring more cash in the bank, but may not be money-savvy enough to shop around, choosing to opt for their current lender for ease.
Loans in Arrears in 2023
Key Stats
- The value of loans in arrears doubled from 2022 to 2023, reaching over £51 million.
- Balances outstanding doubled also from 2022 to 2023, totalling over £2,688 million.
Commentary
The data shows a doubling of the amount in arrears from £25.3 million in 2022 to £51.24 million in 2023. This sharp increase suggests a worsening situation for borrowers who are behind on their mortgage payments, potentially indicating financial distress or difficulties in meeting repayment obligations.
There was a notable surge of 100% in balances outstanding from 2022 to 2023, totalling £2,688.43 million. This substantial increase in outstanding balances highlights the growing amount of unpaid mortgage debt. Whether this debt stems from more people taking out mortgages, or mortgages themselves being of higher value than before, either way it could pose risks for lenders and the broader financial system.
Why Are Mortgage Lending Statistics Significant to Future Borrowers and Lenders?
Mortgage lending statistics from the FCA can be very telling and impact the future of borrowing in several ways. These statistics are significant for several reasons, including:
Market Health Indicator
FCA mortgage lending statistics serve as a vital indicator of the health and stability of the housing market. Trends in mortgage lending, such as changes in loan volumes and interest, offer valuable insights into the overall state of the housing sector.
By tracking these statistics, policymakers, economists, lenders, and consumers can gauge the market's resilience, identify potential risks, and make informed decisions.
Economic Impact
Mortgage lending is closely tied to economic activity. Fluctuations in lending volumes and interest rates can impact consumer spending, investment, and overall economic growth.
Financial Stability
Sound mortgage lending practices are crucial for maintaining financial stability. Monitoring mortgage lending statistics allows regulators to identify emerging risks, such as excessive borrowing, subprime lending, or unsustainable housing price increases.
By addressing these risks proactively, regulators can mitigate the likelihood of financial crises and safeguard the stability of the banking sector.
Consumer Protection
FCA mortgage statistics provide consumers with valuable information about various aspects of the mortgage market, including lending trends, interest rates, arrears, and regulatory compliance.
This transparency enables consumers to make informed decisions when buying a house, empowering them to understand market conditions and assess the risks associated with different mortgage products.
Factors That Could Explain Why Mortgage Lending Statistics Have Worsened in 2023
During economic downturns, mortgage lending statistics may suffer as consumer confidence wanes and demand for housing decreases. This period often sees tighter lending standards, driven by economic uncertainty and job insecurity.
Stricter lending standards, either in response to regulatory changes or perceived risks, can also make it challenging for borrowers, particularly those with lower credit scores or unstable finances, to qualify for mortgages.
Rising interest rates contribute to the decline in mortgage lending activity by increasing the cost of homeownership and reducing affordability for potential buyers. Escalating home prices outpacing income growth pose affordability challenges, further impacting mortgage lending statistics.
Regulatory reforms aimed at reducing risk in the mortgage market may result in tighter lending standards or decreased lending activity as lenders adapt to comply with new regulations.
In summary, a combination of economic factors, lending standards, interest rate fluctuations, affordability issues and regulatory changes collectively impact mortgage lending statistics.
Concerned About Meeting Mortgage Payments?
If you’re worried about making mortgage payments, then it’s a good idea to promptly contact the lender to discuss available options, such as forbearance or loan modifications.
Then, explore government support schemes like mortgage payment holidays, seek advice from financial professionals, review budgets to identify savings, and consider downsizing if necessary.
Understanding legal rights and seeking assistance from support services, such as Citizens Advice, can also provide valuable guidance in managing financial difficulties and preventing foreclosure or repossession.
Some helpful sources, include:
The Future of Buying a Home in 2024
Bird & Co’s analysis highlights the difficulties that those who wish to buy a home on their own face in today’s climate, as well as a lack of opportunities shown through the new commitment figures.
Ultimately, the latest mortgage lending figures show dramatic fluctuation in comparison to previous years, displaying a relative picture of turbulence unseen in recent years. Financial troubles may be leading to changing patterns in remortgaging and mortgage advances, as well as leading to higher levels of arrears and outstanding balances.
A tightening on lenders pockets for single income loans, and a decline in buy to let opportunities, compares to a rather positive picture for those looking to buy their first home with a joint mortgage loan. Overall, the economic instability reported in recent news is reflected in these recent mortgage stats.
If you’re looking to buy your first home or make a move from your current situation, our experts are at hand to advise you on how the process can be made as smooth as possible.
When you’re ready to make the move, we’ll be ready to help you with all your conveyancing needs. Just give us a call at 01476 372 038, or start a quote.
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