There has been an ongoing improvement in household finances in Q2 of this year, with annual lending to homeowners rising 15% and first-time buyer loans growing 19%, shows data from UK Finance’s latest report.
The trade body’s Household Finance Review states that the rise in lending was driven the increase in mortgage applications in late 2023 and early 2024.
However, lending remains 16% lower than in 2022 and as house prices have recovered there has also been a decline in mortgage applications.
UK Finance makes the claim that based on this data, growth may not continue through to the end of this year.
A growing number of younger borrowers are also taking out loans over longer terms. During the second quarter, more than in one five took out loans with terms running from 36 to 40 years.
It suggests that borrowers are leaning towards term stretch to get the size of mortgage they need, instead of managing their monthly payments.
External refinancing loans in Q2 dropped 12% to 408,000 compared to the previous year. Internal product transfers – which do not require an affordability assessment – was responsible for 82% of second quarter refinancing.
As a result, increases in payments for borrowers coming close to the end of their fixed-rate deals appear to have reached their peak at the end of last year.
The report also states that mortgage arrears fell slightly from 109,000 at the end of Q1 to 109,700 in the second quarter, with early arrears also falling.
There was a 34% increase in mortgage repossessions, rising from 1,210 in the second quarter of 2023 to 1,620 in Q2 of this year, although they remain some way below pre-pandemic levels.
Eric Leenders, managing director of personal finance at UK Finance, said: “Whilst it’s encouraging that cost-of-living pressures easing meant some households were in a slightly better place financially in Q2 this year, it’s too early to say that the worst of the challenges facing households have passed.
“It’s particularly encouraging to see the numbers of households in mortgage arrears stabilising, and the ‘payments shock’ for those coming off fixed rate mortgage deals does seem to have peaked, with savings levels starting to rise again.
“However, we know this will not be the case for all households and it’s important to stress that anyone who might be struggling can reach out to their lender for support.”
