UK Finance’s Household Finance Review for the third quarter has revealed that house purchase lending recovered strongly during the quarter from the collapse in Q2 and, by September activity was nearly back to the levels seen a year ago.
The trade body said that applications data point to a possible return to annual growth in Q4, but the recent second wave of lockdowns may impact this.
The review stated that purchase activity is likely to be strong in Q1 2021 as households seek to take advantage of lending support such as the Stamp Duty holiday and current Help to Buy scheme before their end-March closure; but beyond this point demand is likely to come under pressure.
With industry and government support measures in place, including a moratorium on court possession proceedings, Q3 saw static arrears and minimal possessions and this is set to continue in Q4.
Further demand for lender support is anticipated to increase next year as employment and incomes come under strain, but the fundamentals behind lending, together with lenders’ forbearance tools, should help to mitigate payment problems, UK Finance said.
Unsecured borrowing has recovered somewhat in Q3, but with households still cautious against an uncertain economic outlook, levels remain well below those seen before the pandemic struck.
Eric Leenders, managing director of personal finance at UK Finance, said: “In third quarter of 2020 the economic and logistical impacts of lockdown receded somewhat, facilitating a strong rebound in the housing market, yet recent further regional lockdowns and tighter restrictions may dampen this to some extent.
“As the stamp duty holiday and current Help-to-buy schemes come to a close at the end of Q1 2021, demand for mortgages is likely to be inflated over the next couple of months – beyond that the outlook is uncertain.
“Unsecured borrowing continued to recover but, with consumer confidence still fragile and reduced day to day spending generating savings for some households, levels remain considerably below those seen before the pandemic.
“Payment deferral schemes have helped millions struggling with Covid-related income shocks. These will now remain in place into 2021, but with the uncertain employment outlook, there may be further pressure on households’ ability to maintain existing credit commitments. Where customers still need support, lenders stand-by ready to help as required.”
Dave Harris, CEO at equity release lender, more2life, added: “Today’s figures reflect the mortgage market’s continued recovery throughout the third quarter of the year. The Chancellor’s stamp duty holiday has gone a long way towards fuelling buyer appetite, while lenders and advisers have worked hard to ensure that borrowers could progress with cases even as the UK suffered with lockdown restrictions.
“The lifetime mortgage market has also provided enormous support to borrowers, with new customer activity improving as a result. Indeed, the number of new lifetime mortgages agreed in Q3 increased by 41% on the previous quarter as the market returned to more normal trading conditions. While we saw some consumers ruthlessly repaying debt and working hard to improve their financial resilience in 2020, others have not fared as well and we expect to see more people needing to consider a more holistic approach to retirement planning and later life finances in the future.
“Advisers have a crucial role to play in helping older clients who have had their finances knocked by the crisis by guiding them to solutions that best suit both their short- and long-term needs. Lenders, networks, trade bodies and service providers must continue to work hard to support advisers with new products and innovation so that they are able to provide the best possible range of choices for their customers.”