Mortgage lending halved by pandemic

New figures from Britain’s banking body show mortgage lending almost halved in the second quarter of the year as the market was frozen due to lockdown.

The most significant fall was 48% for house purchasing. Re-mortgaging slipped by just 4% and buy-to-let lending was down by 11%.

Economic activity

The massive hit taken by the economy as lockdown started resulted in an unprecedented fall in activity as many would-be buyers decided to temporarily shelve their plans because of the uncertainty.

The report said government support, particularly the Job Retention Scheme and its accompanying furlough cash, had ‘kept arrears to a minimum with zero repossessions.

Radical reduction

Spokesman Eric Leenders said: “The economic and logistical impacts of lockdown in the second quarter of 2020, restricting the ability of households to buy or move house, brought about a radical reduction in activity in the mortgage market and shifted refinancing further towards internal product transfers.

These impacts are now receding and we are beginning to see some recovery in the housing market.

“The decline in unsecured borrowing noted in Q1 accelerated as lockdown restrictions held back spending and with restrictions lifting, this is now increasing.

“Many borrowers have been supported through the pandemic with temporary payment deferrals and – looking forward to the third quarter of 2020 – it is encouraging to note that a significant number of customers are now able to resume repayments.”

Uncertain future

However, an uncertain future as the furlough scheme ends on October 31st with a predicted huge spike in job losses as furlough workers learn their posts are no longer there for them to return to is likely to mean borrowers will continue to need support.

Said Mr Leenders: “Although economic activity is beginning to recover, the outlook in the jobs market suggests that customers will still need support and lenders stand ready to help as required.”

Delayed transactions

The housing market is experiencing a mini boom at the start of the third quarter of the year with house prices hitting record levels.

Chief economist Robert Gardner said recently that ‘behavioural shifts’ could be boosting activity as people reassessed their housing needs ‘after life in lockdown’.

Pent up demand

He added: “This rebound reflects a number of factors. Pent-up demand is coming through, where decisions taken to move before lockdown are progressing.

“These trends look set to continue in the near term, further boosted by the recently announced stamp duty holiday, which will serve to bring some activity forward.”

Short-lived

But experts are agreed the boom is likely to be short-lived as the jobless figures start to rise in November.

Mortgage options are changing too with many lenders removing many of their offerings and there are reports that some lenders have started to refuse deals to furloughed workers.

Refuse

Consumer champion Which has reported that some lenders are refusing loans to workers on the government support scheme.

Those that continue to offer deals are adding extra measures like only lending to someone whose partner is employed and hasn’t been furloughed or strictly limiting which deals are on offer.

A Which? spokesman said: “Lenders most commonly told us that they’ll require a letter from the applicant’s employer confirming when they’re due to return to work and confirmation of whether their salary will reduce before considering applications.

“Several banks also confirmed that any extra income such as overtime, commission and bonuses won’t be considered.”