Credit scoring criteria tightens further in Q3

According to today's Q3 Credit Conditions Survey from the Bank of England, the availability of secured credit to households was unchanged in the three months to mid-September 2016, while credit scoring criteria tightened once again.

Related topics:  Mortgages
Amy Loddington
14th October 2016
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Lenders also reported that the proportion of household loan applications being approved declined in Q3 and that demand for mortgages fell 'significantly' in Q3.

Within this, both demand for prime and buy-to-let lending decreased significantly, and the latter recorded the largest fall since the Credit Conditions Survey began in 2007 Q2. Lenders expected overall demand, and demand for prime and buy-to-let, to increase in Q4.

The survey also showed that fees, maximum loan to value and income ratios on secured lending were all unchanged in Q3, and were expected to remain unchanged in Q4.

Jonathan Harris, director of mortgage broker Anderson Harris, commented:

"Mortgage availability remained consistent with the second quarter of the year while the slight tightening in credit scoring criteria continued. There was also a decline in the proportion of household loan applications being approved, suggesting that the referendum was making borrowers more cautious.

"Indeed, lenders report that demand for mortgages fell significantly in the third quarter, which is wholly unsurprising. Lending was particularly hit in the prime and buy-to-let markets, revealing that factors other than the referendum uncertainty were at work. The prime market has been hit hard by the hike in stamp duty at the end of 2014, while buy-to-let has also fallen victim to stamp duty hikes from April, as well as impending changes to mortgage interest tax relief which will make it a less attractive investment than in the past.

"Lenders were more upbeat about the fourth quarter of the year, expecting prime and buy-to-let lending to pick up once more. With spreads on lending unchanged in the third quarter, a trend which is expected to continue for the rest of the year, there will be plenty of attractively-priced mortgage deals to attract buyers, should they feel ready to commit."

Matt Andrews, Managing Director of Bluestone Mortgages, said:

“It is unsurprising that today’s results continue to show the gap between supply and demand for affordable lending options. The lack of availability of affordable loans to creditworthy borrowers is a concern – there are still far too many people being locked out of homeownership by the high street lenders.

“Borrowers need and deserve a more personal and tailored underwriting experience which takes account of their individual circumstances and opens the door to appropriate lending options. The ‘typical’ borrower is changing, and the market needs to reflect that in its approach to lending criteria. A balance needs to be struck between accelerating the mortgage decision process using technology and intelligent, human underwriting to ensure the customer’s needs are taken into account and that lending decisions are made on a case-by-case basis.”

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