Mortgage lending fell in 2019 ‘as affordability pressures constrained activity’

Last year saw the first annual fall in gross mortgage lending since 2010 as affordability pressures limited house purchase activity, according to a trade association.

Around £268 billion worth of home loans were handed out in 2019, down by 0.4% on the previous year, UK Finance said.

Affordability has generally limited house purchase activity across the country, according to the report.

It said that while toughened regulations on affordability have increased consumer protection, they have also constrained the ability of lenders to offer certain borrowers mortgage credit to get on or move up the housing ladder.

With house price growth varying across the UK, the lack of equity that some people have in their homes is also weighing down their ability to move up the property ladder, the report said.

For example, UK Finance estimates that around 9% of mortgaged home owners in Northern Ireland have less than 10% equity, and almost half the 9% are in negative equity – meaning the value of their mortgage exceeds the value of the property.

Across the UK generally, fewer than 3% of mortgaged home owners are estimated to have less than 10% of equity in their home.

But the report also added that Scotland has bucked the trend towards more constrained home mover activity.

It said that relatively easy housing affordability in Scotland helped to facilitate growth of around 3% in home mover activity last year.

Eric Leenders, managing director, personal finance at UK Finance, said: “Last year saw a slight fall in levels of mortgage activity for home purchases, largely driven by increasing affordability pressures. Meanwhile, the re-mortgage market remains competitive, although the shrinking number of customers coming to the end of their fixed rate deals will start to impact volumes in this segment.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “2019 was a tricky year for lenders as they competed for a limited amount of business.

“Concerns over the ongoing Brexit saga and high stamp duty at the upper end of the market combined to prevent people from moving.

“Affordability in London and the South East continued to be constrained with borrowers struggling to pull together big deposits and prove they have the income to support substantial mortgages.

“It doesn’t look as though the market will change significantly this year with most predictions suggesting the same level of lending will be done.

“Yet all the lenders we speak to want to do more lending. The challenge for them will be to stand out from the competition – not everyone can offer the cheapest rates so tweaking criteria, while not falling foul of the regulator, will be another option.

“We expect more innovation from the smaller players, targeting those borrowers who may be struggling to get the funding they need, perhaps because they’ve missed a mobile phone payment or similar.”

UK Finance’s report also said that credit card borrowing growth continues to decline and is at its lowest point since 2013.

Annual growth in credit card borrowing peaked in early 2018 at over 8%, but by the end of 2019 it had fallen to 3.1%.

Over the past decade, the proportion of card balances bearing interest has fallen from three-quarters to a half, as more credit card customers pay off balances immediately, the report said.