"Applications towards the end of the quarter and into Q3 remain higher than before the pandemic began, as we continue to witness the ‘race for space’."
With most delayed purchases now likely to have completed and the SDLT holiday now in its final tapering phase, demand was expected to decline; with lending volumes in H2 forecasted to be considerably lower than in H1 2020.
However, data shows that applications towards the end of Q2 and into Q3 remained at levels higher than before the pandemic began. UK Finance says this suggests that, while a key driver, the stamp duty holiday is not the only factor in play.
Buy-to-let landlords completed the largest monthly volume of purchases since 2016, while first-time buyer numbers were also strong as the Help to Buy equity scheme (in its new form) was extended to the end of May. The Governments mortgage guarantee scheme has also had an impact, encouraging lenders to launch new products at higher LTVs for first-time buyers.
However, UK Finance says the true level of underlying buyer demand will not be clear until October when the current tax break no longer applies.
Although arrears levels remain at low levels, UK Finance warned that the winding down of the Covid Job Retention Scheme and withdrawal of the temporary increase to Universal Credit in Q3 may cause some customers who do not return immediately to full employment to encounter increased payment difficulties.
While early arrears have continued to decline in Q2 2021, later arrears (those 10% or more of total outstanding balance) have gradually increased. This cohort consists largely of borrowers who were in payment difficulties before the pandemic, where their economic situation has worsened even with payment deferrals and/or lender forbearance.
While early and later arrears are currently on opposite tracks, it is expected that early arrears will start to increase as lender and government support schemes are wound down and some proportion of the mortgaged population find themselves in more prolonged positions of income disruption.
UK Finance also expects possessions to increase moderately throughout 2021 and 2022, as lenders begin to re-submit possessions claims and the court backlog unwinds. Ministry of Justice data supports this, showing that possession claims have only increased modestly in Q2 2021, demonstrating a "slow and considered approach from lenders".
Eric Leenders, managing director of personal finance at UK Finance, commented: “There was unprecedented demand in the housing market in Q2 2021 as people sought to take advantage of the stamp duty holiday, with changes to working and living patterns encouraging more homeowners to use their existing equity, either to move further afield or to fund additional house purchases for themselves or family. With the holiday now in its final tapering phase, demand was expected to decline, however applications towards the end of the quarter and into Q3 remain higher than before the pandemic began, as we continue to witness the ‘race for space’.
“The continuing support provided by government and the banking sector for households’ impacted by the pandemic has prevented significant increases in arrears. As the UK emerges from lockdown and these schemes end most households will be able to resume normal payments. However, for those who are not immediately able to return to full employment, lenders stand ready to help with tailored support to best suit customers’ situations.”
Vikki Jefferies, proposition director at Primis, added: “It is pleasing to see another positive quarter for the UK housing and mortgage market. Few could have predicted just how significant housing demand would become in the aftermath of the coronavirus crisis. Today’s statistics reflect the positive impact that the extension of the stamp duty holiday and other government support schemes have had on the market.
“It should be reassuring to us all to see the housing market recovering well from the impact of the crisis, as it is a key driver of economic activity in the UK. However, as government support comes to an end, it is important to note that the long-term impact of the pandemic may not yet be visible, and it will be vital to provide proactive and sustained support for brokers. As such, as we enter into the second half of the year, 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."