By December 2017, mortgage lending in the UK had dropped to its lowest level in almost three years, as the demand fell for expensive properties in Londonand the south-east.
December’s lending drop was influenced by the Bank of England raising their interest rates in early November. Before this, the property market has already faced pressure from the strained disposable income of buyers and Brexit uncertainty. Activity in the housing market is likely to continue to struggle throughout 2018, as house price rises are limited to 2%.
As well as falling lending levels, the City regulator has also warned that borrowers with interest-only mortgages are in danger of losing their homes. The Financial Conduct Authority stated that almost one in five mortgages were interest-only or only partly repaid each month, with many homeowners finding that they can’t make up the shortfall when the term of their mortgages expires.
Furthermore, interest-only mortgages have been labelled as a “ticking time bomb” by regulators, following a review in 2012. Although progress has been made to reduce the amount of people with interest-only mortgages, the Financial Conduct Authority remains concerned that interest-only customers are still at risk of losing their homes.
Currently, there are 1.67m full interest-only and part-capital repayment mortgage accounts outstanding in the UK, which makes up 17.6% of all home loans. In the latest review, the first half of 2017 showed almost 26% of customers with interest-only and part-capital repayment loans were from lower-income groups.
To reclaim the interest of potential buyers, lenders in some parts of London are offering 10% discounts on their mortgage deals. Other cities like Oxford, Cambridge and Aberdeen have also been hit by house price discounting. In contrast to this, the rest of the UK has maintained a solid house price growth.