The Bank of England’s Credit Conditions Survey showed that lenders returned a score of minus 15.5 for the availability of mortgages in Q3, pointing to a contraction in the market. This is expected to improve over the next three months, as indicated by a score of 5.1 for Q4.
Lenders attributed this to the economic environment, wholesale funding conditions and market share objectives.
Ryan McGrath, director of second charge mortgages at Pepper Money, said the survey showed “caution on both sides of the market”, reinforcing why borrowers needed to access and consider a wide range of financial options.
The lender approach aligned with borrower sentiment, as lenders gave a score of minus 37.1 and minus 32.5 for purchase and remortgage demand respectively, suggesting a significant decline.
However, this should recover notably in Q4, based on predictive scores of 9.8 for purchase demand and 23.1 for remortgaging.
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Richard Pinch, senior director of banking and credit advisory at Broadstone, said that although lenders were expecting mortgage and remortgage lending to pick up in Q4, “there are reasons to question how quickly that recovery will come through”.
Pinch said: “With the Autumn Budget looming and Bank of England interest rate hikes potentially on the horizon, households may remain cautious about making major financial commitments.”
He added that the latest Royal Institution of Chartered Surveyors (RICS) housing survey showed pressure was building in the housing market and dampening demand.
Louise Apollonio, sales and distribution director for retail mortgages at Shawbrook, said buyers needed to know what they could afford, not predict the next rate move, and the survey showed that “uncertainty around borrowing costs is weighing on demand, and it’s understandable that people are thinking carefully before committing, particularly in areas such as London where affordability is already stretched”.
Apollonio added: “While the near-term outlook remains subdued, expectations over the next year point to a more stable market.”
Demand for buy-to-let (BTL) lending also deteriorated, based on a score of minus 22.2 for Q3. This is expected to return to a moderate but positive level in Q4, according to a reading of 1.8 from lenders.
Lenders said there was a tightening in the availability of mortgages at both high and low loan-to-value (LTV) ratios, noting this would remain unchanged up to 75% LTV but loosen for mortgages at LTVs above 75%.
There was a slight drawing back in willingness to lend to borrowers with less than 10% equity, as indicated by a score of minus 4.4, but this should improve in Q4, as determined by the lender response of 9.7.
Defaults fall
Lenders said default rates fell in Q3 and would be unchanged in Q4, while the losses given default on mortgages were unchanged in Q3 and expected to rise slightly over the next quarter.
Meanwhile, the overall swaps on mortgages relative to the base rate or appropriate swap rate narrowed in Q3 and were expected to remain narrow in Q4, suggesting pricing would closely track market rates.
