Lenders predict improving higher LTV availability in Q3 – BoE

Lenders predict improving higher LTV availability in Q3 – BoE

 

The results came from the Bank of England (BoE) Credit Conditions Survey reported by banks and building societies which unsurprisingly showed substantial drops in activity in the second quarter of 2020.

Survey results are measured in net percentage balances between -100 and 100, weighing responses based on lender market shares.

Positive changes are reported as an increase while negative scores indicate a decrease. Lenders who report conditions have changed ‘a lot’ will be assigned twice the score of those who report ‘a little’ change. 

From April to June, lenders reported demand for house purchases dropped by more than 100 points to –79 from a positive score of 27.9 in Q1.

The demand for remortgaging fell by a little less from 38.5 in the first three months of the year to -54.9 in Q2 

Buy-to-let lending demand tumbled most of all, falling to a score of -84.9 from 41.2 in the previous quarter. 

However, lenders expect all measures to improve in the next three months reporting scores of 18.5, 21.5 and 21.1 for purchases, buy-to-let and remortgages respectively. 

 

High LTV risk 

The availability of secured credit fell during the quarter and high loan to value (LTV) borrowers were hit the hardest, with lenders reporting a score of -83.1 for the availability of lending to clients with LTV ratios of 75 per cent and above. 

When asked how willing they were to lend to borrowers with 10 per cent equity, lenders scored -90.5 for Q2 but that is expected to improve over the next three months with respondents scoring -19 for Q3. 

 

Defaults on the rise 

Defaults rose during the quarter and are expected to increase further over the next three months, however lenders said credit scoring criteria would loosen in Q3. 

The proportion of loan approvals is predicted to remain unchanged from quarter to quarter while the credit quality of new applications is expected to improve slightly. 

 

Market boost on the horizon 

Mark Harris, chief executive of SPF Private Clients, said: “With the UK housing market in lockdown for a good part of the period covered by the survey, it is no surprise that the demand for lending for new purchases and remortgaging decreased, and like the Bank of England we would expect this to pick up in the next quarter.  

Overall spreads also widened and with lenders re-pricing upwards this past week while swap rates continue to fall, this trend looks set to continue.  

“The stamp duty holiday is a welcome boost to the market and should hopefully boost activity in the next few weeks and months.  

Transactions are far more important than house prices and if the volume of the former rise, it is good not just for the housing market but the whole economy, he added.