Lenders also told the Bank of England (BoE) that after seeing the spread of prime mortgage rates narrow for the sixth consecutive quarter they expect rates to begin diverging in Q3.
They noted that granting unsecured credit was becoming significantly harder with criteria tightening.
The data from the BoE’s quarterly Credit Conditions survey gives a snapshot of how bank and building societies are preparing for and dealing with trends in the consumer credit market.
Lenders reported that household demand for secured lending for remortgaging increased in Q2 with demand expected to increase slightly in Q3.
Meanwhile, demand for house purchase lending was unchanged in Q2 and is expected to remain so in the third quarter.
Interest rate spreads
They also noted that mortgage rates to households relative to the BoE’s Bank Rate or the appropriate swap rate had become more competitive in 2018 Q2, for the sixth consecutive quarter. But, they expect this to reverse in Q3 with a slight widening of pricing spreads expected.
Both buy-to-let and prime lending mortgage rates were reported to have lowered significantly in Q2 but while slight widening is expected for prime lending in Q3, a slight narrowing, or cheaper rates are predicted for buy-to-let lending.
It is also notable that lenders appear to be diverting consumers from unsecured loans and onto credit cards.
Credit scoring criteria for the granting of other unsecured loans were reported to have become significantly harder in Q2 and the proportion of applications that were approved fell slightly.
However, the proportion of approvals of credit card loan applications increased significantly in Q2.