House purchase activity being up year-on-year in Q3 despite dropping “sharply” after the June stamp duty deadline is mainly down to borrowers moving home, UK Finance says.
In its quarterly household finance review, the trade body describes the drop off that occurred in the third quarter of this year as a “predictable and familiar one, with homebuyers bringing purchases forward in order to save a significant sum of money in what is typically the largest single financial commitment they will make in their lifetime.”
It says, however, that the fall in activity was much less pronounced than after previous stamp duty changes, “as the third and final phase of the exemption remained in place until the end of September.”
And yearly growth is significant, UK Finance adds, because last year’s figures were already helped by factors outside of the stamp duty holiday.
It notes that even though the stamp duty holiday was less generous for higher value property purchases, “the continued strength in homemover activity as the [stamp duty] exemption was phased out, following nearly a decade of stagnation, suggests there could be a more persistent attitudinal change to come out of the nation’s experience during the pandemic.”
UK Finance believes that although it is not clear if changes in working culture – namely the growth in remote working – will persist, “homemover activity is likely to be supported by these social drivers in a way that was not possible before Covid-19 brought about this change in mindset, both from employers and workers.”
The report also points out the regional differences in the record-breaking lending figures of this year (housing transactions will likely reach the highest level seen since 2006): “The strongest growth was seen in the northern English regions, as well as the other UK devolved nations.
“Meanwhile, the comparative higher prices in the south, most notably the capital, meant that the exemption benefited fewer buyers, and these regions saw commensurately weaker growth.”
Like many industry watchers, UK Finance expects rising inflation to bring down mortgage demand in the latter quarter of this year and beyond.
UK Finance also looks at household refinancing. Here, it notes that an increasing amount of equity being withdrawn peaked in June 2021 at the same as house purchasing activity was at its highest.
The peak amount being withdrawn – £106,000 – “together with the timing of this peak, suggest strongly that much of this has indeed been used to fund or part-fund additional property purchases.”
And product transfers, the body says, “dominate”, mostly down to their simple and digital nature.
The total number of arrears cases fell by 2,380 in Q3 this year to 79,880, UK Finance adds. This good news is offset by the fact that borrowers in heavier arrears (more than 10% of the mortgage balance) have become more entrenched, “as the possession and subsequent sale which would otherwise have brought an end to the build-up of arrears has not been able to take place.”
Phoebus Software sales and marketing director Richard Pike says: “The potential for an increase in mortgage arrears in the coming months is one that lenders will need to manage well.
“As the Bank of England looks to loosen mortgage stress-test rules more borrowers could be able to get onto the property ladder, but after seven years under the current rules, interest rate rises on the horizon and the cost of living increasing, will lenders continue to loosen lending criteria?”
Meanwhile, Wayhome chief executive Nigel Purves comments: “The evidence speaks for itself – home movers disproportionately benefited from the government’s support through the pandemic, while would-be first time buyers were hung out to dry.
“The first rung of the property ladder is getting further and further away – salaries have fallen behind inflation, meaning even those in full-time work face needing to save for more than fifteen years for a deposit. Once they’ve got that deposit, restrictive lending criteria means getting a mortgage is still no mean feat.
“The current landscape is unsustainable; homeownership shouldn’t be an impossible dream – we need radical change in the property market to make it a reality for more people.”