Mortgage warning signs from the Bank of England

In the last three months of 2022, mortgages agreed for the coming months were down by a third (33.5%) from the previous three months, and down a quarter (24.5%) in a year. Excluding the onset of the pandemic when the market was effectively closed, this is the lowest level of mortgage approvals since 2015.

The value of balances with arrears rose for the first time since the start of 2021 – by 4.6% over three months and 1.3% over a year. However, it’s still close to historic lows. 5.1% of mortgages had a loan-to-value of over 90%, the highest since the start of 2020.

The Bank of England released statistics from mortgage lenders and administrators for the last three months of 2022: Mortgage Lenders and Administrators Statistics – 2022 Q4 | Bank of England

Sarah Coles, head of personal finance, Hargreaves Lansdown said: “The mortgage market isn’t on red alert just yet, but things aren’t looking good for the canaries in the coal mine. Mortgage approvals have dropped, arrears have risen, and more than one in 20 mortgages are for at least 90% of the asking price – which could leave some buyers vulnerable to price drops.

“Mortgage approvals dropped like a stone at the end of 2022, after the mini-Budget sent rates soaring, and sent would-be buyers scurrying back into their own homes. It’s why transaction levels at the start of this year have been quite so sluggish. However, the market remains optimistic that there will be some residual strength in approvals as we move further into 2023, especially now that rates have dropped back significantly from the peak. Of course, much will depend on what happens to mortgages if inflation proves difficult to shift, and the Bank of England is forced to keep raising rates.

“There’s still every expectation that lower demand will push prices over the edge. Already Nationwide is showing annual falls, and it may only be a matter of time before all the indices follow suit. With drops predicted at anything up to 10%, this raises threats for those who have bought with small deposits. So it’s worth keeping an eye on figures that show one in 20 mortgages have a loan-to-value of over 90%, which could put buyers in the danger zone if house prices were to drop significantly.

“Arrears will also be one to watch. We’re still near historic lows, but the number of people falling into arrears on their mortgage is starting to rise. Separate figures from the ONS found that at the end of February and beginning of March almost a third (32%) of people found it difficult to pay the rent or mortgage, and almost one in 20 (4%) had already fallen behind. Meanwhile, the HL Savings & Resilience Barometer found that 347,000 people are at critical risk of falling into arrears, because not only is their mortgage getting more expensive, but they don’t have any emergency savings to fall back on, and they’re already spending more cash each month than they have coming in.

“As yet, none of these are signs of imminent collapse in the housing market, but they are strong indications that weakness may well endure, and could leave some people particularly exposed.”