The Bank of England’s Credit Conditions Survey found that lenders gave a score of 14.9% for the level of demand seen in the second quarter, while returning a reading of negative 23.2% for Q3, suggesting a notable drop in demand.
Lenders expected activity to be down on all fronts, with a score of 23.8% for prime lending in Q2 against a prediction of negative 23.2% in the following three months. Lenders said demand for remortgaging was 42.5% in Q2 but expected this to contract notably based on a reading of negative 20.5% for the next quarter.
Buy-to-let mortgage demand was also expected to slide, with a slightly negative reading of negative 1.3% in Q2 forecast to worsen in Q3 with a predictive score of negative 31.7%.
Despite this, lenders expect the availability of mortgages to improve in Q3 after it remained stable in Q2.
The availability of mortgages for borrowers with low loan to value (LTV) ratios at 75% or less decreased in Q2 but was expected to improve in Q3, while the availability of mortgages for high LTV borrowers was stable in Q2 and expected to remain the same in Q3.
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Further, lenders said they were more willing to lend to borrowers with less than 10% equity in their homes in Q2, but suggested they may draw back on this in Q3.
Lenders said there had been an improvement in maximum LTV limits in Q2, which would stay flat in Q3, while maximum loan to income (LTI) ratios would improve.
Nathan Emerson, CEO of Propertymark, said: “More stable levels of secured debt, such as mortgages, generally indicate there has been no sudden or harsh shift in consumer confidence.
“The figures lean towards demonstrating many households have weathered current Middle Eastern geopolitical tensions remarkably robustly, potentially helped by inflation seeing a recent dip and base rates not seeing any increases.
“Recent uncertainty within the global economy has added a degree of reservation regarding financial certainty for many people, and with some UK Government policy effectively being paused until there is clarity on the next Prime Minister, the next 12 months may prove essential to closely scrutinise.”
Steady default rates
The Credit Conditions Survey found that default rates on mortgages were flat in Q2 and expected to remain unchanged in Q3. Losses given on default loans rose during the quarter but were set to be unchanged in the near term.
Overall spreads on mortgage lending relative to the bank rate or appropriate swap rate widened in Q2, suggesting higher pricing, but lenders said this would narrow in Q3.
