High LTV lending increases in Q1: BoE

High LTV lending has increased as lender appetites for risk have grown, according to the latest Credit Conditions Survey from the Bank of England.

Related topics:  Mortgages
Amy Loddington
3rd April 2014
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In the three months to early March, lenders reported that the availability of secured credit to households had increased slightly, with availability increasing 'significantly' at higher LTV ratios. Demand for secured lending for house purchase was reported to have increased in 2014 Q1, and was expected to increase significantly in Q2. Spreads continued to tighten, albeit at a slightly slower pace than previous quarters. Household loan performance was again reported to have improved significantly in Q1.

The availability of unsecured household credit increased slightly in 2014 Q1. Demand for credit card lending fell significantly but demand for other unsecured lending such as personal loans increased.

Overall corporate credit availability increased in 2014 Q1, the sixth consecutive quarter that lenders reported an increase in availability. Demand for credit was reported to have increased from SMEs and significantly increased for medium-sized companies and large corporates.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says:

"With demand for mortgages increasing significantly, lenders are preparing to make more products available to borrowers in the second quarter of the year. All the lenders we speak to are keen to do considerably more lending this year than last but with the MMR ensuring that borrowers can afford those mortgages when interest rates rise, we aren't seeing a return to reckless lending.

"As there is a limit to the number of people with 40 per cent deposits and squeaky-clean credit histories, lenders will have to be prepared to go up the loan-to-value curve and consider the odd blip on the credit file, such as missed mobile payment several months ago, if they are serious about improving their market share. This is good news for borrowers who have more modest deposits, with the Bank of England reporting that availability of higher LTV mortgages has already significantly increased. The introduction of Help to Buy has played a large part in this, with lenders operating outside the scheme also raising their maximum LTVs in order to attract borrowers.

"Rising house prices are bad news for those struggling to get on the property ladder or move up it but good for those remortgaging, with lenders expecting to see a big rise in the number of people taking advantage of the increased equity in their home in the second quarter. With five-year fixed rates still available around the 3 per cent mark, and base rate not going to stay at 0.5 per cent for ever, it is as good a time as any to remortgage."

Matthew Fell, CBI Director for Competitive Markets, said:

“Confidence is beginning to translate into increased demand for growth finance across firms of all sizes. It’s particularly encouraging to see another uptick in long-term capital investment activity, which will help contribute to a sustainable recovery.

“But the improving conditions for larger businesses now need to filter through more widely. Banks have a crucial role to play in the economic recovery and must step up to the plate and support lending to smaller firms too.

“This data also highlights a measured rise in demand for consumer credit as households begin to look forward to a recovery in real incomes later this year.”

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