Demand for mortgages falls

In the three months to early December, lenders reported that demand for secured lending for house purchase had fallen markedly, say BoE.

Related topics:  Mortgages
Millie Dyson
6th January 2011
Mortgages
Availability of secured lending was broadly unchanged, but lenders reported that the outlook for house price inflation had constrained availability a little over the previous quarter. Lenders reported that corporate credit availability and demand were little changed in 2010 Q4.

The falls in spreads on new lending to households and corporates reported in recent quarters generally continued in 2010 Q4, but lenders did not expect spreads for most types of new lending to fall further in 2011 Q1.

Default rates and the losses realised following default had continued to fall across most types of lending to both households and businesses. Though for small businesses lenders reported that both default rates and losses given default had risen a little.

Simon Rubinsohn, RICS chief economist, said:

"The survey suggests little change in the availability of mortgage finance in recent months and this broadly stable picture is expected to persist during the early part of 2011. Significantly, the report indicates a continuing preference amongst lenders to steer away from higher risk loans.

"While the availability of finance for ‘low’ loan to value mortgages (75 per cent and less) has actually increased, it has contracted where smaller deposits are being put down by borrowers.

"This contrasting picture clearly demonstrates the obstacles that first-time buyers will continue to face in trying to get a foothold on the property ladder. Even without the implementation of the tough recommendations to the Mortgage Market Review from the FSA, lenders will continue to be cautious in the provision of finance.

"This suggests that the total number of mortgage approvals in 2011 will not be very different from last year. It also points to a further increase in demand to rent property. As the last RICS Residential Lettings Survey indicated, the imbalance between demand and supply is already leading to sharply higher rents."

Paul Hunt, managing director at Phoebus Software said:

“A drop in the availability of high LTV mortgages shows that lenders are seriously concerned about the UK’s economic prospects. But what may be of even more concern is that a vicious circle is starting to develop as a result of lenders’ expectations for house prices.

"The market is, to a large extent, being held back by the limited availability of finance, which is causing an expectation among lenders that prices will fall and equities will shrink.

"Demand for secured finance is also falling – as a result of borrowers’ difficulties in putting together sufficiently large deposits – and it seems unlikely that the brakes will come off property prices in the coming months.

“Nevertheless, the market is certainly in better shape than it was during its recession nadir. The demand for credit is still well above the level seen during the depths of the recession and there is no indication that credit scoring criteria have become tougher.

"Lenders are still seeking to lend where they feel they can do so safely, which explains the rises in remortgages and low LTV mortgages. We are beginning to see a two-tier property market, where there are great opportunities for those able to muster large deposits, but those with more limited finance – especially first-time buyers – are being squeezed out."
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