New mortgage lending falls by 25pc as interest rates soar

NEW mortgage lending has plunged by a quarter as high interest rates and the aftershocks from last year’s minibudget continue to hit the market.

Lenders agreed home loans worth £58.4bn in the last three months of 2022, data from the Bank of England showed, which was a drop of 24.5pc compared with the same period a year earlier.

The slump in lending came in the wake of September’s mini-budget, which sent market borrowing rates surging over uncertainty about UK finances.

Higher rates made it more costly for banks to fund their mortgage offers and many pulled products from the market in the immediate aftermath of the statement. The value of new mortgage loans plunged by a third between summer and autumn, the Bank’s figures show.

Mortgage lending at the end of last year hit the lowest level since spring 2020, when the housing market was effectively closed by lockdown.

Banks’ forward lending commitments are a key lead indicator for sales and the sharp drop means property transactions are likely to plunge in the months ahead.

Higher rates have seriously reduced how much buyers can afford to borrow and piled pressure on existing homeowners. The number of homeowners failing to make their mortgage payments jumped for the first time in two years, Bank of England figures show.

The value of outstanding mortgage loans in arrears rose by 4.6pc to hit £13.6bn at the end of last year, marking the first increase since the start of 2021.

Around 72,000 homeowners are now behind on payments. The share of mortgages in arrears rose from 0.78pc to 0.81pc of total outstanding.

This was still low by historical levels – even at the start of 2020, before the pandemic, the share was 0.91pc – but is likely to be the beginning of an upward trajectory. The Bank defines mortgage arrears as a failure to make a contractual payment of at least 1.5pc of the outstanding balance, or where a property is in possession.

Mortgage rates have cooled since they peaked in October but are still more than double what they were a year ago. The average two-year fix was 5.32pc at the start of this month, compared with 2.65pc at the start of March 2022, according to Moneyfacts.