Bank of England survey signals a pullback in borrower appetite after a stronger second quarter
Lenders anticipate a marked slowdown in mortgage demand over the coming months, even as they prepare to widen access to home loans, new Bank of England data shows.
The Bank's quarterly Credit Conditions Survey, which gathers responses from banks and building societies, found that demand for house purchase lending stood at 14.9% in the second quarter of the year but is projected to fall to negative 23.2% in the third quarter, marking a sharp reversal.
Remortgage demand followed a similar trajectory. Lenders reported a reading of 42.5% for the second quarter, but expect this to drop to negative 20.5% between June and August.
Buy-to-let lending is also forecast to soften. Having already recorded a slightly negative score of negative 1.3% in the second quarter, buy-to-let demand is expected to weaken further to negative 31.7% in the third quarter.
Despite the anticipated fall in demand, lenders expect mortgage availability to improve in the third quarter, having held steady in the previous three months.
Availability for borrowers with loan-to-value ratios of 75% or below fell in the second quarter but is expected to recover in the third. Availability for higher LTV borrowers remained stable in the second quarter and is expected to stay unchanged in the following period.
Lenders also indicated a greater willingness in the second quarter to lend to borrowers with less than 10% equity in their property, though this appetite may ease in the third quarter. Maximum loan-to-value limits improved in the second quarter and are expected to hold steady, while maximum loan-to-income ratios are forecast to improve further.
On arrears, the survey found default rates on mortgages held steady in the second quarter and are expected to remain unchanged in the third. Losses incurred on defaulted loans increased over the quarter but are also expected to stay flat in the near term. Spreads on mortgage lending, measured against the bank rate or relevant swap rate, widened in the second quarter, indicating higher pricing, though lenders expect this to narrow in the third quarter.
“More stable levels of secured debt, such as mortgages, generally indicate there has been no sudden or harsh shift in consumer confidence,” said Nathan Emerson (pictured right), chief executive of industry body Propertymark.
“The figures lean towards demonstrating many households have weathered current Middle Eastern geopolitical tensions remarkably robustly, potentially helped by inflation seeing a recent dip and base rates not seeing any increases.
“Recent uncertainty within the global economy has added a degree of reservation regarding financial certainty for many people, and with some UK government policy effectively being paused until there is clarity on the next Prime Minister, the next 12 months may prove essential to closely scrutinise.”
Damien Burke (pictured right), head of regulatory practice at banking and credit advisory consultancy Broadstone, agreed that the findings showed how external events had interrupted an improving outlook.
“The latest Credit Conditions Survey further demonstrates that while consumer confidence and the economic outlook were beginning to improve at the start of the year, the conflict in Iran has dampened that trajectory,” Burke said.
“The continued stability in unsecured lending demand demonstrates a more measured consumer backdrop, with households staying cautious about taking on additional debt as financial pressures remain front of mind.
“Lenders will be increasingly focused on gaining a wider understanding, therefore, of borrowers’ individual affordability so that they can continue to support demand in the market. This includes assessing affordability at the outset for both mortgage and consumer credit products, as well as through ongoing reviews.”
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