BoE: mortgage demand drops "significantly" in Q1

The latest Bank of England Credit Conditions Survey reported that mortgage demand decreased significantly in the first quarter of 2015, as it had in 2014 H2.

Related topics:  Mortgages
Rozi Jones
8th April 2015
bank of england boe

The quarterly survey of bank and building society lenders found that the fall in demand was significant in prime lending, where the net percentage balance was the lowest since 2008 Q3.

Some lenders attributed the reduction in secured lending demand over recent quarters to a combination of changes in regulatory policy; concerns about housing affordability; and uncertainty about the outlook for the housing market.

However demand for secured lending for house purchase, and particularly prime lending, is expected to increase in Q2. Similarly, demand for secured lending for remortgaging also fell significantly in Q1, but was expected to increase slightly in Q2.

For the tenth successive quarter, spreads on secured lending rates to households — relative to Bank Rate or the relevant swap rate — narrowed in Q1. The narrowing in spreads in Q1 came at the same time as a fall in banks’ internal transfer prices. Fees charged on secured lending also fell in Q1. Lenders expected a further significant narrowing in mortgage spreads and a further slight reduction in fees over the next three months.

Jonathan Samuels, chief executive of Dragonfly Property Finance, commented:

"For demand to have fallen particularly sharply at the upper end of the market underlines the sensitivity of this demographic to political uncertainty.

"Many prime and super-prime buyers are sitting on their hands and want to see what the next Government looks like before they commit to a purchase. This is especially the case in the capital.

"That this is the most uncertain election in decades has certainly triggered more caution at this level of the market than normal. What the next Government will look like is anyone's guess.

"Overall, we expect demand to pick up during the summer months. With mortgage rates still very low and people feeling better off due to zero inflation, confidence is improving.

"We would also expect to see more money enter the property market as a result of changes in the pension rules.

"The fall in demand for home loans in the first three months of the year is consistent with the ongoing slowdown in activity levels.

"Over the past six to nine months, the property market has without doubt paused for breath."

Brian Murphy, Head of Lending at Mortgage Advice Bureau, added:

“The Bank’s latest survey shows that secured lending is still readily accessible by would-be homebuyers, with the availability of credit to households unchanged from the end of last year. As the first anniversary of the Mortgage Market Review approaches, it is encouraging that lenders predict access to loans will increase slightly in the next three months. This suggests the mortgage market has stabilised and is poised to resume its growth, in spite of election uncertainty.

“With further rate cuts on the cards, the outlook remains bright for consumers looking to buy a home. Although demand has slowed, the prospect of low borrowing costs and greater availability of credit from lenders should encourage more people back to the mortgage market.

“As well as bedding in the MMR rules, lenders have been tightening up affordability checks as directed by the Financial Policy Committee so it is positive to see that approvals remained stable in Q1. With more lenders on the market and record numbers of products available, the new affordability measures still leave plenty of room for people to find a loan that suits their needs.”

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