The cost of living squeeze is one of the greatest challenges facing the mortgage industry in 2022 following the bumper 12 months the sector enjoyed last year, says UK Finance director of mortgages Charles Roe.

“It’s fair to say that 2021 was a lending year like no other and 2022 has, so far, started very strongly,” said Roe at today’s UK Finance annual mortgage lunch.

“Looking back over the last two years, the industry has experienced one of the greatest challenges it has ever faced – supporting homeowners impacted by the effects of the pandemic.

“As an industry, we should be proud of the work we did to provide almost three million mortgage payment deferrals which, at the peak, covered nearly one in five mortgages in the UK.”

Roe said last year the industry’s gross lending totalled £309bn, the highest figure since 2007.

It provided 400,000 loans to first-time buyers, at a rate of 46 per hour, and 440,000 loans to homemovers, 50 per hour.

The sector also completed 1.6 million refinancing transactions, at a rate of 179 per hour in 2021.

But Roe added: “While the sector has demonstrated its ability to evolve and respond to the needs of customers, regulators, and government, over the next few years, this flexibility will continue to be tested as we respond to a number of emerging themes.”

Roe’s comments come after the Bank of England doubled the base rate to 0.5% from 0.25% last month, the second rise from its historic 0.1% low in three months.

The Bank has signalled more rises may be on the way to combat inflation, which hit a 30-year high of 5.5% last month, with the central bank forecasting it will peak at 7.25% in April.

Households also face a triple-whammy of rising bills in April.

Electricity and gas bills for a typical household are set to jump by £693 a year in April, a 54 per cent increase, after regulator Ofgem raised the price caps energy firms are subject to last month. Global wholesale gas prices have risen fourfold over the last 12 months, Ofgem said. 

Many commentators add that the war between Russia and Ukraine will further push up energy and food prices.

Also, a national insurance tax rise for employees, employers and the self-employed will see them all pay 1.25p more in the pound. It will mean a worker on £20,000 a year will pay an extra £89 in tax, while someone on £50,000 will pay £464 more.

Roe said: “The increases in national insurance contributions, energy, food and day-to-day living expenses will create challenges for some borrowers, not just FTBs. Although households look to be in a good position currently, we expect increases in arrears throughout this year as cost-of-living pressures begin to bite.”

He added that “affordability tests should ensure that these borrowers have flex in their budgets to manage additional costs pressures”.