Lenders expect lower availability of secured credit in Q3: BoE

Lenders expect the availability of secured credit to decline slightly over the next three months to the end of August, according to a Bank of England (BoE) survey.

This follows the first three months of the year, when lenders reported that the availability of secured credit to households had fallen, according to the BoE’s quarterly credit conditions survey.

Lenders said they became less willing to lend to first-time buyers or those with home equity less than 10% of their home’s value, falling from a positive 0.9 in the second quarter to 0, 9 negative over the next three months.

Demand for secured home purchase loans rose in the second quarter to a positive reading of 30.4, but shows a negative reading of 41.9 for the next three months.

Meanwhile, demand for mortgages is expected to move from a negative reading of 6.3 in the second quarter to a positive balance of 4.4 over the next three months.

Meanwhile, lenders said overall secured credit availability fell to a negative balance of 22.0, but that was expected to improve slightly in the third quarter to a negative balance of 5.1.

When asked how credit rating criteria had changed over the past three months, lenders reported a decline with a positive reading of 4.9. Over the next three months, this figure is expected to decrease slightly to a positive balance of 3.9.

Elsewhere, the net percentage change in default rates on secured loans to households was negative 7.6 in Q2, and is expected to rise in Q3 to a positive reading of 37.0.

The net balance as a percentage of changes in losses given default on secured loans in the second quarter was a negative balance of 25.1, but is expected to increase to a positive balance of 0.6 over the next three months.

Commenting on the latest data, Hargreaves Lansdown senior personal finance analyst Sarah Coles said: “It has become more difficult to get a mortgage in these three months as banks have started to consider higher prices in their mortgage calculations.”

“They said they expected it to be even harder to borrow over the summer. This is yet another pressure on the housing market, which is showing signs of slowing down.

Coreco Managing Director Andrew Montlake explains: “Demand for mortgages was stronger than ever in the second quarter of the year and supply was just as robust.”

He suggests the problem now is that mortgages are “rising faster than the mercury”.

“If lenders expect an offer [of credit] down slightly in the next quarter, that’s partly because they’ve been inundated in recent months and need to slow down to maintain service levels, and partly because they’re concerned about the economic outlook and are tightening their accessibility criteria.

“However, this time is different from the global financial crisis because lenders are now financially strong, so we won’t see another credit crunch. The real issue will be on borrowers’ morale and finances when they will come to remortgage.

“During the first half of the year, prices in the mortgage market have transformed beyond recognition and sooner or later this, together with the current cost of living crisis, will start to hit demand. However, the latest data on GDP and the robust job market suggest that we could, at most, avoid a recession,” he adds.

Also commenting, Dashly founder Ross Boyd said, “A lot of the demand we saw in Q2 and are still seeing is driven by fear. People want to buy or remortgage before rates go even higher. Lenders expect demand for mortgages to decline in the third quarter and that could well be the case if inflation and rates continue to rise and sentiment deteriorates.

“When they come to remortgage, it will be less of a case of rate shock for many borrowers, and more of rate trauma. The impending mortgage crisis will add significantly to the cost of living crisis. We are going to have a turbulent twelve months.

The survey was conducted between May 30 and June 17.

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