In analysis for its Q2 Household Finance Review, UK finance says that consumer spending patterns 'remain stable' for now, but that the continuing cost-of-living crsis and interest rate rises would create significant pressures in the coming months.
Mortgage borrowing was lower than the same time a year ago, although UK Finance say this was expected as Q2 2021 saw a rush of borrowers completing ahead of the end of the Stamp Duty holiday. Despite this, house purchasing activity has now returned to pre-Covid 19 acitvity levels as UK Finance had predicted - although it said 'some softening of demand [was] expected', either later in 2022 or next year.
Growth in overall mortgage application levels – a forward indicator of mortgage completions in the following quarter - dropped year-on-year through Q2. UK Finance say that two conflicting factors may be in play here, with the contraction in house purchase demand compared to levels this time last year, more than offsetting the strength in refinancing as increased numbers of fixed rate deals come to an end and customers seek a new deal.
Product transfers fell away in Q2, but external remortgage activity has grown year-on-year as borrowers appear to shop arouind amid rate rises. UK Finance says it expects product transfers and remortgage to remain relatively strong until next year as 1.8 million customers reach the end of their fixed rate deals.
UK Finance managing director of personal finance says:
“Household spending was stable in the spring, with increased personal loan borrowing. We understand that some consumers are making larger purchases earlier than planned to stay ahead of inflation.
“As we head into the autumn, the pressure on household finances will increase and we anticipate a drop in consumer spending and house-buying activity.”
Richard Tugwell, director of mortgage distribution at Vida comments:
“The scale of the challenge facing Liz Truss as she becomes the UK’s next prime minister is not to be underestimated, and she needs to act fast to address the multitude of challenges that Britain is currently facing. Chief amongst these challenges are the spiralling cost of living and energy crunch. While these figures show that there has been relatively robust spending by households across the UK in Q2, this is likely to decline as rising interest rates, fuel, energy, and grocery costs kick in and begin to have a real impact on household budgets. With rising mortgage rates and house prices, in addition to increased living costs, brokers will need to work harder than ever to support their clients and find them the right mortgage for their needs as affordability is no doubt going to be stretched, especially for the lower-income families and first-time buyers.”
Vikki Jefferies, Proposition Director, PRIMIS, comments on UK Finance Household Finance Review, Q2 2022:
“Although borrowing has dropped for house purchases, we expect remortgage and buy-to-let activity to remain buoyant for the rest of the year.
“With today’s data showing elevated pressures on household budgets, advisers can support consumers by offering a range of flexible products that will enable them to maximise their assets to enhance their finances in the long-term.
“However, given approximately £100bn of mortgages are set to mature by the end of 2022, brokers will have an extremely busy pipeline of business in the coming months, and they will certainly be stretched. It will be vital to provide them with proactive and sustained support, and as such, we will continue to support our brokers through our Virtual Experts page and our product desk will be on hand to assist with client queries."
