The Bank of England’s Credit Conditions survey found lenders returned a score of 9.2% for the availability of secured credit to households in Q1, suggesting a slight increase. However, they gave a score of 19.8% for the coming three months, indicating more availability.
Lenders said the availability of credit for borrowers needing a mortgage below 75% loan to value (LTV) would be unchanged in Q2 but predicted there would be more access for borrowers needing high-LTV loans.
Paul Matthews, senior director for risk at Broadstone, said: “Despite uncertainty returning to the market in spades over the past few weeks, the Credit Conditions survey suggests an expansion in both the availability and demand for household borrowing.
“It marks a hat trick of economic good news for the government in the past seven days, after inflation fell more than expected this week and the economy expanded faster than anticipated last week. As rates fall, the loosening of credit conditions could boost economic activity by encouraging investment and consumption, but it must be noted that the economy remains in a precarious situation.”
When asked what influenced credit availability in Q1, lenders gave higher scores for changing risk appetite than funding, house prices, the economy and market share objectives, suggesting this was the main driver.
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Raised concerns about the UK economy
Looking to Q2, risk appetite will play a smaller role on the availability of mortgages, as lender responses indicated market share objectives would be a bigger factor.
Funding conditions and house price expectations were not expected to impact mortgage availability going forward, but there were slight concerns about the economy, as the response score rose from negative 3.1% for the effect it had on credit availability in Q1 to 2% for the influence it was expected to have in the three months to May.
Matthews added: “Household confidence will be key to taking advantage of this increasing supply of credit, but remains shaky and could be derailed should the ongoing global negotiations on trade tariffs result in further market turbulence.”
Demand for purchases expected to be flat amid rise in remortgaging
Lenders said there was a rise in demand for mortgages for house purchases in Q1 and this is expected to stay flat in Q2. The demand for remortgaging also rose, and was predicted to increase further over the next three months.
Spreads, or the interest rate difference, on secured lending to households relative to the base rate or swap rate narrowed in Q1 and were expected to stay unchanged over the next quarter.
Stable default rates
Lenders reported no change to default rates on mortgages during Q1 and said this would remain unchanged in Q2.
Matthews said: “With default rates beginning to fall, it suggests that there could be some light on the edge of the horizon.
“Lenders should ensure they continue to offer options that suit the long-term financial interests of all their customers and stand ready to protect borrowers should matters take a turn for the worse.”
