Value of lenders’ new mortgage commitments plunged in second quarter of 2020

The total value of new mortgage commitments made by lenders more than halved to its lowest level in a decade while the housing market was in the depths of lockdown, figures show.

The value of new mortgage commitments – lending agreed to be handed out in the coming months – was £34.3 billion in the second quarter of 2020.

This was 53.2% lower than a year earlier, according to the mortgage lenders and administrators statistics released jointly by the Bank of England and Financial Conduct Authority.

The latest figure was the lowest quarterly total since the first quarter of 2010.

In the second quarter of 2019, lenders’ new commitments had totalled £73.4 billion.

The total value of mortgages handed out during the second quarter, at £44.1 billion, was a third (33.3%) lower than in the second quarter of 2019, when the total stood at £66.1 billion. The latest quarterly total was the lowest since the second quarter of 2013.

Many mortgage applications were temporarily paused by lenders in the early weeks of the coronavirus lockdown, amid problems with carrying out physical valuations due to social distancing measures.

The figures also show that a smaller proportion of mortgages handed out in the second quarter of 2020 were low-deposit loans, when compared with the same period a year earlier.

The share of mortgages advanced in the second quarter of 2020 with loan to value (LTV) ratios over 90% was 4.9%, 0.6 percentage points lower than a year earlier.

Analysis from financial information website Moneyfacts.co.uk revealed this week that more than 1,000 low-deposit mortgage deals have vanished from the market in the past six months, in a blow to first-time buyers.

The mortgage lenders and administrators statistics also showed that the share of gross mortgage lending for buy-to-let purposes, including property purchases and re-mortgaging, was 14.4%, an increase of 1.2 percentage points from the second quarter of 2019.

The value of outstanding balances with some arrears increased to £14.1 billion, and now accounts for 0.93% of outstanding mortgage balances, the report said. Covid-19-related mortgage payment holidays are not considered formal arrears.

As the housing market has gradually reopened, and pent-up buyer demand has been released back into the housing market, reports have put average UK house prices at new record highs.

Jonathan Harris, managing director of mortgage broker Forensic Property Finance, said: “The impact of the pandemic comes through loud and clear in these figures from the Bank of England with the value of new mortgage commitments dropping dramatically in the second quarter.”

He added: “This year, the market was in the midst of lockdown with very few transactions able to take place.

“The market should bounce back in the third quarter in response to the mini-boom in the housing market.

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said: “These figures are interesting even though they are a little bit dated as they chart the bottom of the housing market between April and June when buying and selling was on its knees and there was very little activity.”

Mr Leaf continued: “Of note too is the performance of the buy-to-let sector which is shown here to be perhaps more resilient than many expected at that time. It proves that investors were still keen to look for opportunities in the rental market at a time when alternative investments offered little comfort.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The main concern for lenders is whether people are going to be able to afford their mortgage during the recession.

“The early signs seem to show they’re right to be worried.

“Covid-related mortgage holidays are not counted as arrears and yet the value of mortgages in arrears was up 2.8% in these three months to £14.1 billion.

“They’re also concerned about house prices in future so any weakening in the housing market is going to exacerbate the tightening of the mortgage market.

“And, as a result, they’re working to reduce the risk profile of borrowers, which is why we’re seeing lenders more wary of high-income multiples and small deposits.”