Although overall secured credit availability increased in Q4 after falling significantly in Q3, lenders reported less willingness to lend at loan to value ratios above 90%, and maximum loan to income ratios fell significantly.
The proportion of household loan applications being approved also fell slightly in 2014 Q4, compared with lenders’ expectations of a rise.
However, lenders expect both approval rates and consumer demand to increase in Q1 2015.
On the other hand, demand increased significantly for both credit card lending and other unsecured lending products such as personal loans, both at their highest level since the Credit Conditions Survey began in 2007 Q2.
Brian Murphy, Head of Lending at Mortgage Advice Bureau, commented:
“Although 2014 marked a restorative year for the UK mortgage market, the impact of tighter lending regulations meant availability of secured lending took a hit in Q3. However, this recovered markedly by the end of the year, with lenders upbeat that credit supply will be maintained in early 2015. Now the Mortgage Market Review changes and further FCA restrictions have had time to bed in, potential buyers are likely to find their chances of accessing mortgage finance have improved.
“Decreased availability of mortgage finance had a knock-on effect in terms of declining consumer demand in the final quarter of 2014. However, this is likely to have been exacerbated by seasonal variations as the housing market wound down before Christmas. Lenders predict that demand will rise again in Q1 2015, and current conditions support this view: the mortgage rate war continues to rage on, with consumers benefiting from record low rates as lenders vie for business.
“Improving access to the housing market for the first-time buyers remains a key focus as we begin the New Year, so it is concerning that lenders became less willing to lend at loan to value ratios above 90% in Q4 2014. While Help to Buy has done much to improve the availability of 95% loans, it is important that high LTV lending does not depend too heavily on the scheme. Lenders must ramp up their 95% LTV offering to ensure potential buyers with small deposits are not left behind in the housing market recovery.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, added:
"Signs of a slowdown in the housing market towards the end of last year have been confirmed with lenders reporting a significant drop in demand for mortgages for house purchases in the fourth quarter. Indeed, things slowed to such an extent that demand was at its lowest since the third quarter of 2008, while there was also a decline in buy-to-let lending.
"This caught lenders out as they had expected mortgage demand to rise but they still expect a slight increase over the next three months, perhaps as buyers in the mainstream market take advantage of the reduction in stamp duty.
"The spreads between the cost of borrowing to lenders and the rate charged to borrowers narrowed significantly as lenders competed with each other for business. As this continues into the first quarter of this year, lenders expect to make further rate reductions, making competitive mortgages even more attractive. There are some great deals out there for borrowers at the moment, particularly on longer-term fixed rates.
"However, some people will find it harder to get mortgages as lenders reported less willingness to lend at more than 90 per cent loan-to-value and also a fall in loan to income ratios. The mortgage market review has resulted in tighter criteria and certain borrowers continue to be hit hard."
