Mortgage commitments at 10-year low under Covid

Mortgage commitments at 10-year low under Covid
Credit: Luke MacGregor/Bloomberg

The value of new mortgage commitments has hit a ten-year low in the second quarter of this year, latest official figures have shown.

Data published yesterday (September 8) by the Financial Conduct Authority and Prudential Regulation Authority showed the value of new mortgage commitments dropped to its lowest level since Q1 2010, and by half on last year, as it hit £34.3bn.

The value of gross mortgage advances fared little better, at £44.1bn, a third (33.3 per cent) lower than the same quarter last year, and the lowest level since 2013 Q2.

The share of gross mortgage lending for buy-to-let purposes (covering house purchase, remortgage and further advance) meanwhile increased by 1.2 percentage points in the year, to 14.4 per cent.

Figures have been strongly affected by the coronavirus pandemic, which effectively saw a closure of the housing market for weeks.

Jonathan Harris, managing director of mortgage broker Forensic Property Finance, commented: "The impact of the pandemic comes through loud and clear in these figures from the Bank of England with the value of new mortgage commitments dropping dramatically in the second quarter.

“These were 53.2 per cent lower than the same period the previous year, which was during the Brexit debacle so the market was not particularly strong as uncertainty meant people put decisions to buy on hold. This year, the market was in the midst of lockdown with very few transactions able to take place.”

But Mr Harris thought the market would “bounce back” in Q3 in response to a “mini boom” currently seen.

The quarterly statistics also showed the share of gross advances, with interest rates less than 2 per cent above the bank rate, was 73.3 per cent in Q2, 10.5 percentage points lower than a year ago but broadly unchanged on the previous quarter.

The FCA noted the decrease in Q1 had been driven by the 65 basis point cut in the bank rate in March, rather than any significant change in mortgage interest rates.

Since March the bank rate has stood at a record low of 0.1 per cent.

The share of mortgages advanced in Q2 with loan to value (LTV) ratios exceeding 75 per cent fell to 36.5 per cent, down 3.2 percentage points on last year.

At the even higher end, the above 90 per cent LTVs, also dropped to 4.9 per cent, 0.6 percentage points lower than a year earlier.

Mr Harris added: “The vast majority of lending remained at 75 per cent loan-to-value or less, a feature of the market for the past few quarters.

“High LTV deals of 90 per cent and more are increasingly difficult to come by and this is likely to continue for the foreseeable future until more lenders commit to this segment of the market.”

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