The Intermediary – June 2025 - Flipbook - Page 23
RESIDENTIAL
Opinion
Market cools, but
don’t mistake it
for a collapse
T
he mortgage market
has had a jiery start
to the second quarter.
Aer the surge in
completions at the end
of March, driven by
the Stamp Duty changes, the latest
Money and Credit data from the Bank
of England reveals just how sharply
activity has fallen away.
April saw net mortgage borrowing
swing from a robust £13bn in March
to -£0.8bn – a drop of £13.7bn in a
single month. Gross lending halved
to £16.9bn, while repayments also
dropped, but not by enough to offset
the collapse in new activity. It’s the
steepest monthly fall in gross lending
since June 2021.
While it’s tempting to read this as a
market in retreat, advisers will know
it’s more a case of pausing to catch
its breath.
Much of March’s momentum was
artificially inflated by the rush to beat
the Stamp Duty deadline. Buyers,
brokers and lenders alike had a clear
incentive to get deals over the line
before thresholds reset. What we’re
seeing now is the natural hangover
from that sprint finish.
Approvals data tells the real story.
House purchase approvals fell again
in April, down to 60,500. That’s the
fourth consecutive monthly decline,
and while not catastrophic, it’s an
unmistakable signal that demand is
soening. Remortgaging approvals,
meanwhile, ticked up slightly to
35,300, but these figures only include
remortgages with a different lender,
and overall refinancing activity
remains subdued.
This ties in closely with the
Financial Conduct Authority’s (FCA)
lending data for Q1, which captured
the peak of the pre-April rush. Those
figures showed gross advances rising
12.8% on the quarter to £77.6bn – the
highest since Q4 2022. It’s also a 50%
increase on the same period last year,
but as with the Bank’s March figures,
this shouldn’t be mistaken for a true
return to form. It was a blip caused
by a policy deadline, not the start of a
sustained recovery.
In truth, Q2 looks set to be defined
by ‘wait-and-see’ behaviour. With no
clear timeline for rate cuts, plenty
of would-be borrowers are holding
back. The effective interest rate on
new mortgages nudged down slightly
in April to 4.49%, but this is still high
by recent standards, and affordability
remains a constraint.
Refinance window
For existing borrowers, the average
rate on the outstanding stock of
mortgages edged up again to 3.86%.
The refinance window that many
borrowers are entering now is tighter
than they expected when they took out
their deals, particularly if they fixed at
rock-boom rates a few years ago.
The FCA data did show one trend
that merits close aention: the share
of new advances with loan-to-values
(LTVs) over 90% rose to 6.7%, the
highest level since the financial crisis.
That might reflect lenders trying to
tempt first-time buyers back into the
market, or buyers stretching to access
it. Either way, it’s a sign that risk
appetites are shiing again. Advisers
must be vigilant when helping clients
structure deals. It’s one thing to get
a high LTV mortgage agreed, but
another to ensure it’s sustainable.
What we’re not yet seeing,
reassuringly, is a spike in distress.
New arrears cases fell slightly, and
the total value of balances in arrears
dropped by 2.9% on the quarter, even
if they remain higher than a year ago.
But this is a lagging indicator, and the
KAREN NOYE
is mortgage expert at Quilter
broader economic picture remains
fragile. According to early PAYE
estimates for May, payrolled employee
numbers fell by 274,000 compared
to last year. If that trend continues,
lender affordability models will
tighten, and some borrowers may find
the window to refinance narrower
than they expect.
For advisers, this is a moment to
step in and help clients tune out the
noise. It’s tempting for borrowers to
try and time the market – holding out
for rate cuts or hoping for a sudden
improvement in affordability. But the
reality is that any improvements will
likely be incremental.
Market conditions are more stable
than they were a year ago, but they’re
not exactly benign. Clients still need
careful budgeting and clear advice to
avoid overextending themselves.
The broader lesson from April’s
data is that policy shocks – like a
sudden change in Stamp Duty – can
dramatically warp short-term activity.
But when the dust seles, structural
challenges remain. High house prices,
squeezed budgets, and cautious lenders
all point to a subdued market over the
summer. That doesn’t mean there’s no
business to be done, but it does mean
that advisers will need to work harder
to help clients find value, particularly
those coming off fixed rates or looking
to move in a flat market.
The headline figures may bounce up
and down, but the fundamentals are
clear: affordability remains tight, rate
uncertainty persists, and borrowers
need guidance more than ever.
Advisers who can keep their clients
calm and well-informed in this
environment will be doing them a
greater service than simply securing a
headline rate. ●
June 2025 | The Intermediary
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