These predictions were made in the Bank of England’s Credit Conditions Survey for Q4 2019, which showed that secured credit to households increased in the three months to end-November 2019 and was said to have been driven by market share objectives.
Furthermore, house purchase demand and default rates on secured loans to households both dropped during the quarter with lenders expecting both to continue to fall in the first quarter of 2020. Remortgage demand increased during the quarter but was expected to decrease in Q1.
Andrew Montlake, managing director of Coreco, said he did not understand why lenders expected credit supply to drop, as during Q4 “the mortgage lending market was awash with cash trying to find a home”.
“From what we’re seeing, they’re as hungry as ever to get money into the market and have become even more bullish following the General Election result.
“If mortgage demand did decrease slightly in the fourth quarter, it was almost certainly due to the General Election and broader political chaos of the autumn,” he said.
He added: “We are already seeing an uplift in demand and transactions on the back of improved sentiment following the General Election.
“Nobody is expecting transaction levels to suddenly go through the roof, as there is still a lot of uncertainty as to how Brexit pans out, but demand has definitely improved in January and the signs are that this will continue.”
Mark Harris, chief executive of SPF Private Clients, said lenders’ reservations may be down to the uncertainty which still surrounds Brexit negotiations but said the market had seen more positivity since the election.
He said: “Demand for remortgaging increased in the final quarter with borrowers taking advantage of cheap five-year fixed-rate mortgages in particular as a hedge against all the uncertainty.”
“With transaction levels subdued as would-be buyers and sellers prevaricated over making decisions with Brexit looming large in the background, the need to do more lending was ever more apparent.”
Reduced rates expected
Harris also predicted that lenders would continue to drop rates to bring in business, helping to continue the decline in default rates as borrowers were more likely to be able to afford loan repayments.
He said: “This trend is expected to continue into this quarter, which is great news for borrowers. Barclays, Halifax and Skipton building society have already reduced rates this year, a trend likely to be followed by other lenders.”
“Thankfully, default rates dropped a little and are expected to continue to do so. This is likely to be down to cheap interest rates and forbearance shown by lenders. Tougher affordability criteria also mean borrowers are less likely to overstretch themselves in the first place when taking out a mortgage.”