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Lenders report ‘surprising’ drop in mortgage demand in Q4 – BoE

  • 13/01/2022
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Lenders report ‘surprising’ drop in mortgage demand in Q4 – BoE
Mortgage lenders have reported Q4 falls in demand for house purchase mortgages last year, expected to continue declining in the first quarter of this year.


The Bank of England’s Credit Conditions Survey for the period showed this decreased from a measure of -35.3 in Q3 to -34.8 in Q4. Lenders expect this to fall further to a score of -28.7 in Q1 of this year. 

Demand for remortgages rose in Q4 to a score of 70.4, up from 34.5 in Q3. 

The scores for lender responses are calculated by market share, with a larger weighting given to those with a bigger share. A positive reading indicates an improvement to the respective scenario, while a negative reading suggests a decline. 

Although lenders reported a decline in business, mortgage brokers have said the responses do not reflect the business they conducted. 

Andrew Montlake, managing director of Coreco, said remortgages were “on fire” due to rumours of a rate rise at the end of the year and borrowers looking to lock in rates. 

He added: “Demand for house purchase was also strong so it’s an enigma that the Bank of England is reporting demand decreased. That’s not what we saw on the ground.” 

Jamie Thompson, mortgage broker at Jamie Thompson Mortgages, said: “First-time buyers were out in force in the latter stages of 2021 so it’s surprising to see lenders reporting demand actually decreased. If there’s any reason for that, it’s likely down to the sheer lack of supply and shortage of properties coming onto the market.” 

Demand for buy-to-let lending surged in Q4, rising to a net balance of 26.9 from -9.1 in the previous quarter. This is expected to drop again in Q1, however, with a lender response score of -13.4. 

Lenders also reported they would be more willing to lend to borrowers with a deposit of 10 per cent or less in the near future. Respondents gave a positive score of 30.7 predicted for Q1, compared to the 19.8 score for lenders who issued loans to low deposit borrowers in Q4. 


Rising defaults and stable rates

The number of mortgages in default decreased in Q4 from a score of -37.1 to -11.1, however lenders predicted this would rise in Q1 with a response score of 13.9. 

Overall lending spreads on mortgages narrowed in Q4, suggesting a drop in interest rates over the period. This is expected to remain fairly level in the first quarter of 2022. 

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said: “The back end of 2021 saw rates move upwards, not by much and overall rates are still incredibly low. That upward shift, however, was enough to get people talking and that’s generated a lot of questions, especially from first-time buyers.  

“However, the reality is a little different, with lenders raising some rates following the base rate change, whilst lowering others. So, there is still a huge competitive pressure on lenders to keep rates keen and attract new customers.” 

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