Bank of England data shows that mortgage debt increased by £2.4 billion in March, to £7 billion from £4.6 billion in February. This is well above the pre-pandemic average of £4.3 billion, and has seen lenders tightening lending criteria.
Meanwhile, gross lending rose slightly to £26.5 billion in March from £26 billion the previous month, while gross repayments fell to £19.7 billion.
Adrian Lowery, financial analyst at Bestinvest, said that recent monthly mortgage lending data has been extremely volatile, but the trend is likely to return closer to levels seen before the pandemic hit.
Lowery said: “The Bank of England’s quarterly credit conditions survey last month noted that lenders expect loan defaults to rise over the coming months and plan to rein in mortgage lending by the greatest amount since the early days of the COVID-19 pandemic. That report showed lenders expect more defaults on mortgages in the three months to the end of this month.
‘Despite this, the Bank has suggested it could dilute a required stress test that states borrowers must be able to afford a three percentage point increase in their mortgage rate. The new stipulation will be 1.5 percentage points. That might seem a contrary move given the expected upwards path for interest and mortgage rates in the medium-term.”
Both HSBC and Nationwide have recently tightened their criteria for borrowers seeking larger loans. HSBC now requires those who apply for a mortgage at 4.75 times their annual income to earn at least £50,000 a year. Nationwide has increased the minimum salary required to apply for its ‘Helping Hand’ mortgage range, which offers loans at up to five and a half times income. Single applicants now need to earn £37,000 and couples £55,000.
However, Lowery said homeowners still need to be careful about their level of debt.
“In the current climate of rising costs across the board, homebuyers and remortgagers should be careful not to overstretch themselves, even if a broker or lender can arrange it. A good rule of thumb is that no more than a third of total household post-tax income should be taken up by housing costs, whether that is rent or mortgage payments,” he added.
