Yahoo Finance UK mortgage lending falls by over 40% as interest rates bite
New mortgage commitments — lending agreed by banks to be advanced in the coming months — shrank by 41.4% year-on-year in the third quarter of 2023, as high interest rates continue to take their toll on the UK housing market.
Data released on Tuesday by the Bank of England showed that there was a 16.5% decrease in new lending quarter-on-quarter, dropping to £51.5bn in Q3.
Meanwhile, the outstanding value of all residential mortgage loans decreased by 0.1% from the previous quarter, data showed, and was 0.8% lower than a year earlier.
In signs of pressure on household finances, the value of outstanding mortgage balances with arrears increased by 11.4% from the previous quarter, to £18.8bn, and was 44% higher than a year earlier.
The proportion of the total loan balances with arrears, relative to all outstanding mortgage balances, increased on the quarter from 1.02% to 1.14% — the highest since Q2 2017.
Read more: UK mortgage lending set for 'sharp contraction' in 2024
New statistics also showed mounting evidence of a weakening buy-to-let market. The share of gross mortgage advances for house purchases for owner occupation increased by 3.5 percentage points from the previous quarter to 57.4%, and was 1.3 percentage points higher than a year earlier.
The data comes amid predictions of a "sharp contraction" in mortgage lending in 2024, as interest rates, the cost of living squeeze and high inflation hits would-be property owners.
According to a forecast by UK Finance, the main pressures on affordability look to have peaked, despite the outlook of continuing challenges in the mortgage market in 2024.
"With these pressures unlikely to ease significantly in the short term, we expect lending to remain weak in 2024, with a gradual improvement in affordability reflected in a modest increase in activity levels in 2025," said James Tatch, head of analytics at UK Finance.
Watch: How much money do I need to buy a house?
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