House purchase lending surged in Q1, following the rush of applications submitted ahead of the original Stamp Duty Land Tax (SDLT) holiday deadline, according to the Q1 UK Finance Review.
Home mover activity was particularly strong, with anecdotal evidence of many homeowners using their substantial existing equity stakes to move to larger properties away from city centres in response to changing working and living patterns.
Refinancing continued to be dominated by internal product transfers; however, there is a continued trend of significant and growing amounts of equity withdrawn with other remortgages, in large part to fund additional property purchases.
UK Finance noted that payment deferrals and government support for jobs and incomes kept arrears increases in check in Q1 2021, while the ban on court actions meant there were no enforced possessions for the fourth consecutive quarter.
From Q2, as support schemes wind down and possessions resume, UK Finance said it is likely arrears will rise above their current level and, after a lag, possessions are expected to rise as well.
Credit card borrowing fell due to additional national lockdowns and post-Christmas seasonality, but showed signs of recovery towards the end of the quarter, according to the review.
Eric Leenders, managing director of personal finance at UK Finance, said: “Since the housing market emerged from its shutdown last spring, we have seen a remarkable recovery in demand, which continued through Q1 2021.
“Existing homeowners have taken advantage of the stamp duty concessions, with changing working and living patterns encouraging more to use their existing equity, either to move further afield or to fund further housing purchases for themselves or family.
“Towards the end of the quarter, cautious optimism was also evident through modest increases in card spending and in unsecured borrowing.
“The continuing support network for household incomes and credit payments has prevented significant increases in arrears.
“As the country emerges from lockdown and these schemes come to a close, most will be able to resume normal payments.
“However, for those unable to do this, the industry stands ready to help with tailored support to best suit individual customers’ needs.”
John Eastgate, managing director of property finance at Shawbrook Bank, added: “A strong Q1 was inevitable.
“Minds should and will turn to the period beyond the artificial boom created by the stamp duty holiday.
“Notwithstanding some inflationary pressures, the cost of borrowing looks likely to stay low and with a fast recovering economy, the outlook for the property market remains robust.
“That underpins buyer confidence which, combined with a likely long-term shift in commuter behaviours, has seen borrowers stretch themselves for that forever home with some green space and a different work-life balance.”
Jon Cooper, head of mortgage distribution, Aldermore, said: “Through successive lockdowns, we’ve seen an unprecedented reassessment by home owners of what they want from a home.
“The change in working and living situations over the past year and likely for the long-term has ignited demand to find property that fits people’s new working and family life, which has led to this house purchase lending surge in Q1.
“Mortgage lenders have thrived the past year through tremendous efforts to meet the adversity of the moment.
“We’ve seen some genuine long-term industry innovation through necessity of social distancing and maintained a steady stream of new business despite unstable conditions, alongside significant existing customer care and engagement.
“This collective work has put the market in a good place for recovery in the months going forward and, with pent-up demand, the stamp duty relief, and the reintroduction of products, we might even say we’re quietly optimistic for a busy second half to 2021.”