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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 from the previous three months, and down a quarter 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 per cent over three months and 1.3 per cent over a year. However, it’s still close to historic lows.


Some 5.1 per cent of mortgages had a loan-to-value of over 90 per cent, the highest since the start of 2020.

Sarah Coles, head of personal finance at Hargreaves Lansdown says: 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 per cent 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 per cent, 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 per cent, 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 of people found it difficult to pay the rent or mortgage, and almost one in 20 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.

* Sarah Coles is personal finance analyst at Hargreaves Lansdown *

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    Mortgages are harder to get, big up front fees and much higher monthly payments, a lot of people just cannot afford, and likely never will

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    It's certainly going to take time for house prices, mortgages, wages and rents to regain any degree of alignment.


    Jo- I have a feeling they won’t, the generation of young people today could be the last who can buy in large (ish) numbers. I feel the BTR world awaits those who follow them or house shares 😱😱


    Simon - that's quite a negative outlook. We have had boom and bust before. We've had negative equity, sky high interest rates, mass unemployment, etc. The housing market has always recovered after a few years.

    This time may be slightly different as far more people have wealth that needs to be protected from IHT. I can see a lot more grandchildren being the beneficiaries of financial assistance at an earlier age.

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    Jo if only that was true you are not allowed to give it to your grand children or anyone else.
    Put it in a trust and pay 20% on the way in, then if you died in next 3 years that tax is washed away and they bring the whole thing back into Est’ for Inheritance tax purposes and pay another 40%.
    Try selling it and pay 28% c/gains tax on inflation, now say you did own 100% of your Est’ but now by magic you only own 72% no index linking or taper relief for all the years you owned and paying tax every year, but you still can’t give it away to your family but you could marry some one any age and now gender and they can cop the lot tax free as long as it makes so idiot of you that’s fine.
    No exit or Retirement plan allowed.
    OK tell me give it away now and no control over it allowed just watch them make ribbons of it before very eyes or split with partners aided by your finance while you plan your death in 7 years time, nice one.


    I agree Michael, 20 yrs ago when I still had the day job (garage) and was paying silly amounts of 40% tax I gifted 50% of my properties to my wife, now with the day job gone both myself and my wife stay just below 40% tax, so that all made perfect sense, my accountant called me into his office a few yrs ago trying to get me to sign some over to my children, big fat no to that one, when myself and my wife are gone they are very welcome to whatever is left less IHT , it will be free money to them then and they will be free to waste it on what they like


    If you give a house away you have to pay CGT and live 7 years for the gift to be outside IHT.
    If you remortgage the house and give the money away you have to live 7 years for it to be outside IHT.
    If you buy jointly with children or grandchildren you stuff up any FTB freebies and make them liable to pay the extra 3% SDLT should they go on to buy their own home.
    If you incorporate you can more easily distribute shares in the company and pay yourself a salary, which can then go into a SIPP, which is outside your estate and can go towards any IHT payment when the time comes.
    If you put it in trust there are charges.
    So there are lots of options with various costs and implications.
    It's all just ridiculously complicated and feels like legalised theft.
    We've worked hard for what we have and have often taken risks and foregone the instant gratification so many other people have had. We have also been denied the opportunity to pay profits into a SIPP and enjoy the tax relief EVERYONE else has unless we are incorporated.


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