Mortgages surge by 30% sparking hope for housing market revival

The value of new home loans agreed by banks and building societies has surged more than 30 percent suggesting there is massive pent up demand among buyers.

Figures produced by City watchdogs at the Financial Conduct Authority (FCA) suggest gloom around the ability of people to own their first home or move up the property ladder may be overdone.

It said the value of new mortgage commitments - lending agreed to be advanced in the coming months - was at £60.1 billion in the past three months.

This figure was up by 30.8 percent on the previous quarter and by 31.2 percent compared with the same period last year.

The FCA said the amount owed by home buyers through mortgages is £1,654.9 billion, which is some 1.4 percent lower that a year ago.

On a less positive note the total value of mortgages that have fallen into arrears against the background of higher home loan interest rates was up by 44.5 percent on this time last year to £21.3 billion.

This may be a reflection of the fact that many people on cheap fixed rate deals faced big hikes when they came to find a new loan.

Peter Stimson, Head of Product at the mortgage lender MPowered Mortgages, said the figures on the value of new loans were a positive, but he warned of many roadblocks.

“While there’s more than a hint of the rear-view mirror about the FCA’s data, it does highlight the pent-up demand for mortgages," he said.

“Levels of new lending grew in the first quarter of this year, but are still far below the numbers seen in 2022 when interest rates first started to rise.

“New mortgage commitments surged by 30.8 percent compared to the final quarter of 2023 and were up 31.2 percent on this time last year.

“This jump in demand can be traced back to the flurry of mortgage rate reductions made by lenders at the start of 2024 in response to falling swap rates, which made borrowing cheaper and kick-started demand from many of the would-be homebuyers who sat out 2023.

“However the cost of borrowing has risen steadily since then, leading to a cooling of demand from movers and first-time buyers. Remortgages once again account for nearly a third of new lending to owner-occupiers.

"Whilst the Conservative Party manifesto contains a number of measures designed to make it easier for people to buy their first home, the key lever – interest rates – is outside Government control."

He said pressure is growing on the Bank of England to cut interest rates, but said "few expect rate cuts to come before August at the earliest".

He added: "Until that happens, lenders will continue to compete on rate in very narrow bands, and progress on both new lending and home sales is likely to remain subdued at best.”

Rishi Sunak has tried to win over young adults with a pledge to permanently abolish stamp duty on purchases up to £425,000 for first time buyers should the Conservatives win the general election.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment service, suggested that given the lack of affordable homes in many parts of the country this is likely to be too little too late.

She said: "Critics could argue that such policies merely kick the can down the road, by potentially inflating house prices at the entry level and ignoring structural defects in the UK property market like a lack of new affordable homes and social housing.

"Rishi Sunak’s promise to abolish stamp duty land tax (SDLT) entirely for first-time buyers purchasing a home worth up to £425,000 appears to make it more affordable for young people to escape rapidly rising rents and secure their first home. However, the latest pledge mirrors the existing exemption for first-time buyers introduced in 2022 as temporary relief and which is set to end in March 2025.

"Making the stamp duty exemption permanent may encourage more first-time buyers to enter the market, particularly as the cap is set at a similar level to the £450,000 ceiling imposed by the tax-efficient Lifetime Individual Savings Account (LISA).

"This savings account, which adult savers aged between 18 to 39 can open, is free of tax on income and capital gains and offers savers a 25% bonus from the Government of up to £1,000 on the maximum annual contribution of £4,000.

"LISAs enable first-time buyers to purchase a home up to the value of £450,000, however this cap on the value of a property a LISA pot can be used for has been criticised for being too restrictive for those living in more expensive parts of the UK, such as London where the average price of a home hovers around the £500,000 mark, who may struggle to find a home that fits their needs under £450,000.

"To really give first-time buyers a boost, it might make more sense for the Tories to synchronise the £425,000 threshold for stamp duty exemption for first-time buyers with the £450,000 cap associated with LISAs. That way, a first-time buyer would not need to downsize their buying aspirations to use their LISA pot to buy a home."

She added: "Other pledges announced by the Tories include the delivery of 1.6 million new homes in the new parliament – 100,000 more than Labour’s target – and increasing development on brownfield sites.

"They have also proposed the launch of a new Help to Buy scheme, recommitted to the existing mortgage guarantee scheme and promised to help more families make a purchase through shared ownership – measures that have the potential to improve the prospects for first-time buyers.

"A capital gains tax break worth thousands for landlords who sell to their tenants could also encourage more landlords to part with their rental properties and free up housing stock for first-time buyers.

"However, the measure has a limited time window of just two years and the rules are complicated with landlords only able to sell to tenants renting from them the day before the announcement on June 1, which means the take up of such a policy is likely to be modest.”