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Lenders continue to tighten credit scoring criteria – BoE

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  • 14/10/2016
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Lenders continue to tighten credit scoring criteria – BoE
Consumers faced tougher mortgage assessments in the third quarter of this year as lenders reported a tightening of credit scoring criteria, driving up the proportion of declined applications.

The Bank of England’s Credit Conditions Survey, based on lenders’ opinions of market activity, revealed it was the second consecutive quarter in which credit scoring criteria had narrowed.

Demand for mortgages to buy homes fell significantly in the third quarter. Both prime and buy-to-lending lending suffered from a decline in demand, with lending to landlords seeing its largest fall since the Bank began conducting its survey in 2007.

Lenders expected overall demand, and demand for prime and buy-to-let, to increase in Q4.

A sentiment survey carried out by the Royal Institution of Chartered Surveyors (RICS) in September, underpinned lenders’ optimism that consumer appetite for home purchase loans will return towards the end of year. Its surveyors said they had seen an increase in new buyer enquiries for the first time since February.

The supply of mortgages was unchanged in the three months to mid-September 2016 and was expected to remain unchanged in Q4.

Overall spreads on secured lending to households, relative to Bank Rate or the appropriate swap rate, were reported to be unchanged in 2016 Q3 and were expected to remain unchanged next quarter.

Jonathan Harris, director of mortgage broker Anderson Harris, said: “Lenders were more upbeat about the fourth quarter of the year, expecting prime and buy-to-let lending to pick up once more. With spreads on lending unchanged in the third quarter, a trend which is expected to continue for the rest of the year, there will be plenty of attractively-priced mortgage deals to attract buyers, should they feel ready to commit.”

Fees, maximum loan-to-value and income ratios on secured lending were all unchanged in Q3, and were expected to remain unchanged in Q4.

Lenders reported that default rates on secured loans to households fell in 2016 Q3, for the 13th consecutive quarter, and were expected to fall again in Q4.

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