The Bank of England’s credit conditions survey found 30.4 per cent of respondents saw strong demand for mortgages for house purchase during the three months to end-May, but this is expected to fall over the next three months to end-August with a respondent score of negative 41 per cent.
The responses to the survey are given net percentage balances between 100 and negative 100. Positive balances suggest increases in activity or an improvement in certain conditions, such as criteria or credit becoming cheaper.
Demand for buy-to-let lending received a positive score of 5.9 per cent during Q2, but this is expected to decline significantly with a prediction of negative 26.7 per cent over the quarter.
Remortgage demand slipped in Q2 with a reading of negative 6.3 per cent and this is forecast to improve in Q3 with a response score of 4.4 per cent.
Rush for rates
Andrew Montlake, managing director of Coreco, said: “Demand for mortgages was as strong as ever during the second quarter of the year and supply was equally robust. The issue now is that mortgage rates are rising faster than the mercury.
“If lenders do expect supply to drop slightly in the next quarter, it’s partly because they have been inundated in recent months and need to slow things down to maintain service levels, and partly because they are concerned about the economic outlook and are tightening their affordability criteria.”
Edward Checkley, managing director of London-based property finance specialists, Advias, added: “Borrowers have been keen to lock into rates quickly as lenders upwardly reprice. In this sense, we have seen healthy remortgage activity and some robust purchase applications as people are incentivised to move.
“Equally, we have also seen some potential buyers put their plans on ice, expecting higher interest rates to put pressure on households which, in turn, will result in quality stock coming to the market at a reduced price.”
Checkley said swap rates had fallen from 2.8 per cent last month to 2.35 per cent but said lenders were “hesitant to lower pricing” as further rate rises were expected, and none wanted their service to be hit due to being on the “best buy tables”.
Rates up, mortgage availability to improve
Lending spreads, relative to Bank Rate or the appropriate swap rate, on mortgages are expected to widen in Q3, signifying a future rise in interest rates. It was noted that this had narrowed in Q2.
Mark Harris, chief executive of SPF Private Clients, said: “Spreads narrowed slightly as lenders absorbed some of the rising cost of borrowing. However, lenders reported that these are expected to widen in the third quarter as mortgage rates continue to rise.”
Jamie Lennox, director at Dimora Mortgages, said: “People’s fear that rates will keep increasing has created a huge spike in applications from customers securing mortgages earlier than normal, which has resulted in a bottleneck where lenders can’t process applications quickly enough.
“The end result is lenders are trying to manage the flow of applications by making their mortgages more expensive. Sadly, this is creating a domino effect due to the fact the next cheapest lender soon gets swamped and withdraws their deals in turn.”
Lenders gave the availability of mortgages during Q2 a reading of negative 22 per cent, but this is expected to ease in Q3 with a projected response score of negative 5.1 per cent.
The proportion of mortgage application approvals during Q2 also received a negative reading, at negative 5.3 per cent but lenders expect this to improve with a score of 0.3 per cent in Q3.
Mortgage criteria is expected to remain fairly stable in Q3, with a modest tightening predicted. Lenders cited the changing economic outlook as the main reason for this.
Defaults and losses
Defaults on mortgages fell in Q2 and are expected to rise in Q3. Losses given default, the money a financial institution loses when a borrower defaults, also dropped in Q2 and is expected to be unchanged in the three months to end-August.
