There are signs that the mortgage market is beginning to slow as homebuyers contend with higher interest rates, leaving banks with the biggest loan books such as Lloyds Banking Group PLC (LSE:LLOY) most exposed.
Borrowing fell by a third within a single month to £5.3bn in June, down from £8bn in May, according to the Bank of England’s latest money and credit report.
Mortgage approvals also fell in June, from 65,700 to 63,700, below the pre-pandemic yearly average, suggesting many homebuyers confronted with the cost-of-living crisis do not have sufficient credit quality to secure a mortgage.
Consumer credit, meanwhile, rose £1.8bn in June, doubling from May, as a £1bn of debt was put on credit cards and nearly as much was taken out in car dealership finance and personal loans.
Early signs of a slowdown
“There are early signs that the [mortgage] market is starting to slow,” said Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
“Mortgage approvals are starting to decline so we can expect to see activity become more muted as people tighten their belts as their bills continue to increase.”
She said the latest figures add to "the growing body of data pointing towards a slowdown in the coming months as homes that were once snapped up take longer to sell and sellers become more likely to tweak asking prices”.
The Bank of England (BoE) update suggests that lenders are tightening their credit requirements and are now more willing to claw back money from customers with bad debt.
Repossessions rise
Mortgage repossessions rose in the first three months of 2022 when 580 homes and 370 buy-to-let properties were taken into possession, although this was from a low base, according to data from UK Finance.
"The anticipated increase in possessions, as the courts reduce backlogs following the conclusion of the industry moratorium in January, can be seen in first quarter data,” Eric Leenders, managing director of personal finance at UK Finance said in May.
“Lenders continue to provide tailored forbearance and support to borrowers who need help and will not look to put customers on a repayment plan that they cannot afford.”
A backlog of repossessions accumulated during the pandemic following a voluntary moratorium on possessions among lenders from March 2020, which ended this January. Nevertheless, there were 240 more repossessions in the first quarter than in the previous quarter.
Rental market pain?
Rental repossessions have also increased this past year, rising 1,487% to 12,965 from 2021 to 2022, according to Landlord Action, part of the Hamilton Fraser Group.
Household savings accumulated during the pandemic, which analysts believed would insulate the country against recession, fell to £1.5bn in June, down from £5.2bn deposits lodged with banks and building societies in May, according to government data.
This has not stopped house prices from continuing to rise, with annual price inflation this July standing at 11%, up from 10.7% in June, amid a relatively limited supply following Rishi Sunak’s stamp duty holiday last year, according to Nationwide's House Price Index for July.