The share of mortgages advanced in Q4 2020 with loan to value ratios exceeding 90% was 1.2%, 4.5 percentage points lower than a year earlier and the lowest level since these statistics began in 2007.
The statistics also showed that the outstanding value of all residential mortgage loans was £1,541.4bn at the end of the quarter which is 2.9% higher than a year earlier.
Karen Noye, mortgage expert at Quilter, said: “The Q4 Bank of England lending statistics make for fascinating reading and magnify what an impact the stamp duty holiday has had on the housing market.
“Although the stamp duty holiday has galvanised the market, it has naturally also pushed prices up locking first time buyers out.
“The statistics show in Q4 2020, the number of 90% LTV mortgages was the lowest on record as lenders shied away from higher risk borrowers as a result of the precarious economic situation we now find ourselves in.
“It’s therefore not surprising that Sunak during the budget introduced the new Help to Buy mortgage guarantee scheme to throw a bone to the first time buyers who have had the rug pulled from under them since the pandemic started due to the surge in house prices and lack of high LTV deals.
“While today’s statistics do show that the new scheme is clearly needed to give first time buyers a fighting chance to get on the housing ladder, they need to think very carefully before taking out a 95% LTV mortgage as it could end up leaving them with negative equity in their homes.
“If house prices drop, as is predicted once the stamp duty holiday is completely gone in September, buyers who have used the guarantee scheme might face an uphill struggle if they want to sell their homes as they will need to cover all the negative equity to redeem the existing mortgage, moving costs and a deposit for the new purchase.”
The value of gross mortgage advances in the last quarter of 2020 was £76.6bn, 4.2% higher than in Q4 2019.
Looking to the value of new mortgage commitments, this was 24.2% higher than a year earlier, at £87.7bn, and the highest level since 2007.
The share of gross advances with interest rates less than 2% above bank rate was 64.8% in Q4 2020, 20.5 percentage points lower than a year ago.
The share for house purchase for owner occupation was 63.9%, up 11.8 percentage points from 2019 Q4.
In addition, the share of gross advances for remortgages for owner occupation was 18.5%, a decrease of 10.7 percentage points since Q4 2019.
The data also shows the value of outstanding balances with some arrears increased by 3.4% over the quarter to £14.3bn, and now accounts for 0.93% of outstanding mortgage balances.
Mark Harris, chief executive of SPF Private Clients, added: “With new mortgage commitments 24.2% higher than a year earlier and at their highest level since 2007, the Bank of England figures illustrate the strength of the uptick in the housing market as we headed towards the end of the year.
“The experience of lockdown and subsequent desire for more space, combined with the stamp duty holiday and record low interest rates, have persuaded many to take the plunge and move.
“High loan-to-value mortgages were harder to come by as lenders reined back on 90% and above.
“The government’s decision to introduce a mortgage guarantee to encourage lenders to offer 95% mortgages once more will make a difference to first-time buyers and others who simply can’t raise a significant deposit.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “Although a little dated, these comprehensive figures clearly illustrate the tidal wave of transactions trying to take advantage of the stamp duty holiday, prior to its recent extension.
“Since a pause in January and early February, speculation about the 31 March deadline being moved, easing of lockdown and success of the vaccination rollout, have all resulted in the tearing up of many house price fall predictions.
“As a result, we are likely to see a market much more balanced between supply and demand but fewer sales as so many buyers and sellers brought forward their decision-making.”
Iain McKenzie, chief executive of The Guild of Property Professionals, said: “At a time of a global pandemic, it’s incredible to think that residential mortgage commitments are at the highest level since the third quarter of 2007.
“What an amazing display of consumer confidence in property, and a complete success for the incentives offered by the government.
“It is good news for the wider economy that there is so much interest in getting on the property ladder, despite the financial challenges faced by many.
“Extending the stamp duty holiday until the end of June and phasing out the scheme until September should help defend against any possible downturn in the market.”
