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Interest rates set to fall to meet rebounding mortgage demand – BoE

  • 15/04/2021
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Interest rates set to fall to meet rebounding mortgage demand – BoE
Mortgage interest rates are predicted to fall over quarter two as lenders prepare to capitalise on recovered demand for house purchases and remortgages.


The Bank of England’s Credit Conditions survey found lenders expected increased appetite for house purchases and remortgages in the three months to May after reported declines in Q1. 

Meanwhile lenders said overall spreads on secured lending to households had narrowed in Q1 and were expected to continue shrinking over the next quarter, suggesting rates would fall. 

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

A net balance of –21.9 lenders indicated the demand for purchase loans dropped in the first three months of the year while demand for remortgages recorded a net balance of -29.3. This was compared to scores of 31.5 and 2.3 respectively in Q4, marking a significant quarterly drop. 

For the next three months, a net balance of 42.8 was given for projected purchase demand in Q2, while remortgages were scored 14.4. 

Andrew Montlake, managing director of Coreco, said: “Lenders clearly believed demand for mortgages decreased in the three months to the end of February because a lot of people felt they had missed out on the stamp duty holiday deadline. But in March, after the Budget, everyone then piled in again.  

“It’s no surprise that lenders reported spreads narrowed as lenders have started to compete a lot more aggressively for market share.” 


Mortgage availability 

Unsurprisingly, lenders expect to be more willing to provide loans to borrowers with less than 10 per cent equity in their homes over the next three months, with a positive score of 57.2.  

This is compared to a score of -0.4 recorded for the sentiment towards low deposit borrowers in Q1. 

This comes ahead of the launch of the government-backed mortgage guarantee scheme on Monday as well as lenders releasing 95 per cent loan to value (LTV) products of their own accord in recent weeks. 

Coinciding with this, lenders said the availability of loans for borrowers on high LTVs would improve in Q2, with a score of 64.9.  


Increasing defaults 

More borrowers are expected to default on their loans over the next three months, following reported rise in defaults in Q1. 

Some 20.3 per cent of lenders reported an increase in defaults during the quarter and 36.1 per cent predicted there would be more. 

Credit criteria is expected to loosen over Q2 with a score of 20.3 for Q2, compared to the negative sentiment of –5.1 in Q1. Approvals will also improve with a net balance of –0.4 for the next three months compared to a sentiment of –2.1 recorded in the previous quarter. 

However, the credit quality of new mortgages in Q2 is predicted to slip with lenders recording a net balance of -4.6 for the next three months compared to the positive score of 15.4 in Q1. 

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