Homebuyers are feeling the effects of the crisis: Mortgage borrowing is at its lowest since Covid

Borrowing for home purchases has fallen to its lowest level since the pandemic as higher interest rates and rising cost of living make it increasingly difficult to afford a home.

Figures from trade organization UK Finance showed that loans for first-time buyers and house movers fell to 121,820 in the second quarter of the year.

Separate data from real estate website Zoopla showed that overall home sales this year would be at their lowest level since 2012.

Meanwhile, comments from Karen Ward, an adviser to the chancellor and strategist at JP Morgan Asset Management, suggested there was more doom to come as central banks look to push western economies into recession to ensure the fight against inflation to win.

Ward, a member of Jeremy Hunt’s economic advisory board, dismissed the idea of ​​a “soft landing” and said there had to be signs of weakness before policymakers felt able to ease their tough stance.

Borrowing: Figures from trade organization UK Finance showed that loans for first-time buyers and house movers fell to 121,820 in the second quarter of the year

“The likelihood of a recession is still high in my opinion,” Ward told Bloomberg TV. “That’s what will eliminate inflation.”

The latest data from UK Finance showed a 28 per cent fall in the number of home loans compared to the same period last year, the lowest since the second quarter of 2020 when lockdowns stalled the market.

UK Finance said that property market activity in the first half of this year “remained very low compared to recent years”.

The report added: “This weakness is due to the significantly greater affordability challenges that borrowers are currently facing.”

Although house prices are beginning to fall and wage growth is accelerating, the price-to-income ratio — a key measure of how difficult it is to afford a home — remains near historic highs.

Meanwhile, higher interest rates on new mortgages combined with higher monthly expenses due to rising inflation have “significantly raised the bar” for borrowers to meet affordability criteria, which – according to rules set by the city regulator – must be met to be approved a loan.

“As these affordability pressures are unlikely to ease anytime soon, lending for housing is likely to remain constrained in the near term,” UK Finance said.

Despite pressure on incomes from high inflation and rising interest rates, consumer spending increased in the second quarter.

Inflation battle: Karen Ward, strategist at JP Morgan, hinted that there will be more gloom as central banks push western economies into recession

This was thanks in part to the austerity wall many households put in place during the pandemic.

Eric Leenders, managing director of personal finance at UK Finance, said: “While the cost of living challenges have created acute hardship for many, we have also seen other consumers largely able to pay their credit card bills and their monthly mortgage to settle.” Payments.

“Some draw on their savings to pay the bills, while others who have savings transfer their money to accounts with higher interest rates to maximize their income.”

Separate figures from Zoopla suggest that the number of completed home sales in 2023 will fall 21 percent year-on-year to 1 million – the lowest level in 11 years.

They also pointed out that annual house price growth slowed to 0.1 percent.

Richard Donnell, CEO of Zoopla, said: “House price growth has slowed rapidly over the last year as demand eases amid higher mortgage rates.”

“Prices are falling more in southern England, where higher mortgage rates have pushed more people out of the housing market, weakening demand.”