High mortgage rates have dominated the headlines for almost two years, ever since they started their rapid ascent in the wake of the infamous “mini-Budget” of September 2022. However, while many people have felt the pain of higher home loan payments, the number of mortgages in the UK has actually fallen significantly since the Global Financial Crisis began.
In the first quarter of this year, the number of outstanding mortgages in the UK stood at just under 10.7m, down 1.2m from the peak of 11.9m reached in the third quarter of 2007.
On the one hand, this reflects an increase in the numbers of mortgage-free households and of private renters. While the number of mortgaged households was forced down in the years after 2008 by falling property prices and job losses, they have been suppressed further by rising house prices and the introduction of more stringent affordability tests by lenders.
While stricter lending criteria have been largely responsible for keeping arrears in check as interest rates rose over the past two years, they have also locked many would-be homeowners out of property ownership over the past decade. Indeed, many people in younger generations have found themselves renting for longer in a housing market that’s becoming progressively more expensive as they try to save a deposit large enough to satisfy the stress tests. In many cases, these households are now paying more in rent than they would have done in mortgage repayments.
Rising interest rates have also brought about a shift in the behaviour of mortgage holders. For much of the last decade, low interest rates meant few people prioritised paying their mortgage down aggressively – this was often because borrowers could generate a higher return from their savings and investments than the interest rate they were paying on their mortgage.
However, as rates have risen, many homeowners with the means to do so have chosen to repay their mortgage, either in full or in part. This means increasing numbers of mortgages are being repaid more quickly, before their full term is up, with some opting to downsize in a bid to pay off the balance.
Our analysis of UK Finance data shows there has been a rise in the number of mortgage redemptions relative to the numbers taking out new mortgages – for every 10 mortgages taken out during the first quarter of this year, 11 were paid off.
This research also shows that 758,000 mortgages were paid off over the last 12 months, 144,000 more than were taken out. Indeed, the number of people paying off their mortgage has surpassed the number of people taking out a new one in seven of the last eight quarters – and, if we look further back, in 21 of the last 30 quarters.
The average value at redemption has also risen to the highest level since we started recording the data in 2001, at over £179,000.
It is likely that 2007 will have been the peak for the number of UK mortgages taken out. Since then, younger generations have faced higher property prices and much stricter stress testing, putting homeownership out of reach.
In the short term, higher interest rates are likely to induce older generations to continue paying down debt, meaning the number of mortgages being paid off will remain above the fairly subdued numbers being taken out. However, in the medium to long term, longer home loan terms and higher prices will constrain the number of mortgages being paid off by Gen X and older Millennials.
