UK Finance says that it expects households to continue snapping up fixed-rate mortgage products despite the dramatic cuts in the Bank of England base rate.

The conclusion comes from the trade body’s quarterly household finance review and has been made because of the fact that lenders have committed to continue to offer product transfers to borrowers on a mortgage payment holiday, and most refinancing is completed via this method.

It adds that with competition within the fixed rate market having driven rates so low, there is a “virtual absence” of a payment certainty premium, and so borrower preference is almost entirely for fixed-rate products.

The review also shows that even before Covid-19 hit these shores, the UK housing market had dropped 3 per cent compared to a year ago.

Within this statistic, however, buy-to-let activity increased by 7 per cent, which helped to offset sluggish action elsewhere.

For example, first-time buyer figures dropped in every region bar London and the South East, with the North of England and Northern Ireland the worst hit areas, with FTB activity falling 10 per cent and 9 per cent, respectively.

Homemover activity was one bright spot in the first three months of the year. Here, volumes grew “and have remained broadly in line with overall house purchase movement, as affordability has remained tight and the economy has remained stable,” says UK Finance.

Mortgage arrears and possessions have dropped year-on-year, UK Finance adds. And one in six mortgage borrowers currently on a mortgage payment holiday shows that even in a period of economic uncertainty, “the majority of borrowers are still able to meet mortgage payments.”

Some commenters urge caution, however. Phoebus Software sales and marketing director Richard Pike says: “The number of borrowers that have taken payment holidays… is considerable and lenders will have to be vigilant as the next wave apply for the extension until the end of October.

“As repossessions are also on hold, we could find that come November we have many households that will find themselves facing higher monthly payments than they had been managing before the break.  This will be something that lenders will need to manage carefully.”

MT Finance commercial director Gareth Lewis adds: “It would be interesting to see data showing how many of those borrowers [who applied for a mortgage payment holiday] actually needed a payment holiday and how many had surplus cash in the bank that could have covered payments.

“Some will have taken a payment holiday because they mistakenly thought it was a free ride and didn’t really understand that it would be added onto the back end of their mortgage.

“There is a potential for a rise in unemployment even with the furlough scheme, which will impact these figures. The mortgage market is muddled – there has been transactional flow going through and there is some pent-up demand for buying and selling properties. Encouragingly, consumer confidence has not been diluted completely.”

UK Finance manging director of personal finance Eric Leenders says: “Following a subdued year in the mortgage market in 2019, any signs we might have seen of improving confidence translating into increased homemover activity at the turn of this year have currently been overtaken by the impact of the Covid-19 pandemic.

“This review does not capture the various support measures to households that the industry has enacted, such as three-month payment holidays and a repossession moratorium… [these] will be reviewed in depth in our next household finance review.”