House purchase lending plummeted in the second quarter as the market was frozen due to the lockdown, the latest UK Finance Household Review shows, but forward- looking data for Q3 shows promise.

For Q2 overall, house purchase activity was hit the most significantly, down 48 per cent compared to Q2 2019.

While mortgage refinancing fell in Q2, it held up better than purchase activity, down 4 per cent year on year, with a significant shift towards internal product transfers.

Buy-to-let lending was also hit, but less dramatically than the general purchase market, down 11 per cent.

Despite lenders pulling high LTV products, with a cautious approach to underwriting, the area of the market was found to have performed better than other areas.

UK Finance data for the third quarter shows a strong initial recovery, as the backlog of delayed sales complete.

The end of June saw the first wave of mortgage payment deferrals come to an end, with fewer than one million customers now on a payment deferral compared with 1.8 million at the peak in early June.

UK Finance managing director, personal finance Eric Leenders says: “The economic and logistical impacts of lockdown in the second quarter of 2020, restricting the ability of households to buy or move house, brought about a radical reduction in activity in the mortgage market and shifted refinancing further towards internal product transfers.  These impacts are now receding and we are beginning to see some recovery in the housing market.

“The decline in unsecured borrowing noted in Q1 accelerated as lockdown restrictions held back spending and with restrictions lifting, this is now increasing.

“Many borrowers have been supported through the pandemic with temporary payment deferrals and – looking forward to the third quarter of 2020 – it is encouraging to note that a significant number of customers are now able to resume repayments.

“Although economic activity is beginning to recover, the outlook in the jobs market suggests that customers will still need support and lenders stand ready to help as required.”

Paragon Bank managing director of mortgages Richard Rowntree says: “Today’s figures show that the buy-to-let market was significantly impacted by coronavirus during the second quarter, as was the broader mortgage market, but we are confident that the sector can make a strong recovery in the second half of the year. Landlord demand for investment is robust, no doubt boosted by the Stamp Duty holiday, but also because of long-term fundamentals underpinning the demand for good quality privately rented homes.

“Overall buy-to-let lending during the first half of the year was down by 11 per cent in value compared to 2019, which considering the impact of the pandemic on the housing market isn’t as bad as originally feared and the buy-to-let sector is again proving its defensive qualities. Activity rebounded after the housing market reopened in May and we should start to see that reflected in an increased level of completions across new purchases and remortgages during the second half of the year.”