New mortgage borrowing nosedives, official data shows, as rates continue to rise

The amount of money borrowed on new mortgages took a nosedive in the early months of this year, according to official figures, as borrowers are increasingly frightened by interest rate volatility.

It comes as potential borrowers have seen sudden and dramatic increases in mortgage rates in recent days and weeks, amid the prospect of more key rate hikes and volatility in financial markets.

According to Moneyfacts experts, the average rate for a two-year new fix is ​​5.86 percent, compared to 5.83 percent last Friday, 5.72 percent last Monday and 5.33 percent a month ago.

A year ago, the average over two years was 3.03 percent.

Meanwhile, a five-year deal averaged 5.51 percent today — up from 5.48 percent yesterday, 5.41 percent last Monday and 5.03 percent a month ago.

Borrowers can check what deals they can apply for and how much it could cost them to take out a new mortgage now, using the value of their home and loan size with This is Money’s best mortgage interest calculator.

The rise in interest rates has dampened the enthusiasm of would-be movers and has forced some of those who have to repay loans from two or five years ago to add hundreds of pounds to their monthly payments.

Figures from the Bank of England today show £58.8 billion in new mortgages borrowed in the first three months of 2023.

This was 26.3 per cent lower than the £76.9 billion borrowed in the same period a year ago, and the lowest level since the period between April and June 2020, when the pandemic lockdown led to a temporary shutdown of the housing market.

New mortgage applications approved for the coming months – known as ‘new pledges’ – totaled £48.9bn, down 40.7 per cent from £82.5bn a year ago and again the lowest since April – June 2020.

The share of people borrowing to take out a new mortgage rose to 34.8 percent, up 5.8 percentage points from the same time last year.

Meanwhile, loans to buy a new home stood at 50.1 percent, down 0.6 percentage points in a year and again the lowest since the start of the pandemic.

9.8 percent of the total was borrowed by renters, the lowest level since 2011 as that group is hammered by higher mortgage rates and the prospect of more regulation.

As of today, NatWest has announced changes to its buy-to-let rates, some of which will increase by 157 basis points.

Not moving: The share of people borrowing to buy a new home fell in early 2023 and the number of mortgages issued to landlords hit a low not seen since 2011

Delinquent payments spike: The number of people not keeping up with mortgage payments rose in the first three months of 2023, Bank of England figures show

There was also a worrying spike in the number of people defaulting on their mortgages.

Official figures show £14.9 billion in arrears. While this represented only 0.89 percent of outstanding mortgages, it represented an increase of 9.5 percent in three months and 12.5 percent in one year.

More recent volatility in the mortgage market suggests that the slowdown in lending could worsen as interest rates begin to rise again after last fall’s mini-budget spike and borrowers have little confidence in where they will settle.

Major lenders have taken their mortgages off the market with little or no advance notice only to return them at higher rates, leaving borrowers and buyers high and dry in the middle of applications.

Yesterday, for example, Santander announced it would temporarily withdraw all of its new corporate residential and buy-to-let fixed and tracker rates “due to current market conditions.”

Last Thursday, HSBC made the decision to temporarily withdraw rates available through brokerage services to “stay within its operating capacity,” though it reopened its brokerage channel for a few hours on Friday.

Mortgage brokers have said borrowers should be prepared to take out a new mortgage quickly if they don’t want to be caught off guard by a sudden interest rate change.

Rising: Fixed mortgage rates have risen this month on the prospect of more base rate hikes and volatility in financial markets.

Steven Morris, advisory director at Advantage Financial Solutions, says rate retractions and increases are happening “across the board,” with some rates rising by as much as 1.5 percentage points — often with little or no warning.

“My advice to clients at this point is don’t even bother getting mortgage advice unless you’re willing to apply in a matter of hours,” he said.

“Send your brokerage documents as soon as possible and in advance if possible, otherwise you won’t even stand a chance of getting a deal before it is withdrawn.

They also think that interest rates will rise even further thanks to the volatility in the financial markets.

Lewis Shaw, founder and mortgage expert at Shaw Financial Services, said: “Yesterday short-term government bond yields peaked, and they have today.

“Unfortunately, that will seep into mortgage rates in the days and weeks to come, so we’re gearing up for even higher mortgage rates, particularly a two-year fixed rate, and rates that will stick around longer than any of us would like. to see.’