Searches for interest-only mortgages soared by 53% in June, as the cost of living crisis continued to bite, data from Legal & General’s Ignite Platform revealed.
It led to ‘interest-only mortgages’ becoming the most commonly searched term that month.
Legal & General said the rise in interest suggests that borrowers could be looking to reduce their monthly costs for a period of time before switching back to a capital repayment mortgage if rates become more favourable.
The rise coincided with a 40% increase in searches for Help to Buy, with demand for Government-backed schemes remaining high.
Legal & General said there has also been increased demand from first-time buyers, despite the ongoing economic volatility, with a 14% jump in searches on behalf of first-time buyers. However, affordability remains a key issue, with searches relating to affordability also increasing by 21% in June.
While the figures pointed to “resilience in the market among first-time buyers”, Legal & General said more must be done to help this group afford to get their foot on the housing ladder.
The data also showed that the buy-to-let sector remained buoyant in June, as landlords look to maximise rental income. The Ignite Platform saw a 32% increase in searches for ‘multi-unit freehold blocks’ and a 38% rise in searches for rental income.
Overseas buyers also continue to invest in the UK property market, helping to bolster its growth. June saw searches on behalf of overseas customers increase by 16%, while searches on behalf of customers with a permanent right to reside or indefinite leave to remain increased by 38%.
Jodie White, head of mortgage products and transformation at Legal & General Technology, said: “It’s clear that the mortgage market remains robust despite ongoing issues with affordability, rising interest rates and stubborn inflation. It’s positive to see that market activity is still being driven by specific sectors including buy-to-let, overseas buyers, and by increased demand for particular property types.
“During this time, it’s vitally important that advisers implement new technologies to best manage demand for mortgage advice across various sectors. Advice is incredibly important right now and advisers have a crucial role to play supporting buyers and ensuring they have access to the full range of options available to them.”
The findings from Legal & General follow the release of the Royal Institution of Chartered Surveyors’ Residential Market Survey, which showed new enquiries from prospective UK buyers fell to an eight-month low in June in what it said points to a “renewed deterioration” in the UK sales market. House prices also fell during the month, with further falls expected over the coming months.
In the rental market, rising tenant demand continued to battle against a lack of available properties, with June’s survey pointing to the largest decline in landlord instructions since May 2020.
Iwona Hovenko, real estate analyst at Bloomberg Intelligence, commented: “As expected, the sharply rising mortgage rates have made it even tougher for prospective buyers to afford a property, while also hitting a wider housing-market confidence – especially as it took just weeks for the mortgage rates to surpass the levels last seen amid the post mini-budget meltdown. This has spooked many potential homebuyers, as evident in RICS’ June survey.
“The elevated mortgage rates may continue dragging the housing market for the foreseeable future, until there are signs of inflation getting under control and a clarity emerging about the end of Bank of England’s rate hikes. In turn this could help reduce pressure on mortgage rates and help the housing market find its balance again.”
Hovenko said the faster-than-expected wage and inflation growth in recent months appears to have created limited scope for mortgage rates to fall markedly in the near term, which may weigh on housing activity in the coming months.
“The longer the mortgage rates remain near their current elevated levels, the larger the potential damage inflicted on house prices and transactions. The next big test may be the July inflation data, which will include the energy price cap falling by almost 20%,” added Hovenko.
[Main image: toa-heftiba-nrSzRUWqmoI-unsplash]
