- MMR causes amount of credit available from banks to drop like a stone
- Lenders also spooked by property price outlook
- Credit card borrowing increases for the first time in nine months
First-time buyers and home movers were hit by a summer mortgage crunch but banks and building societies expect mortgage lending to bounce back in the next three months, a Bank of England survey revealed this morning.
Its Credit Conditions survey of lenders between June and September recorded the largest fall in the amount of credit they were able to supply since the end of 2008, when Lehman Brothers collapsed.
Lenders told the Bank they have also become less willing to lend to people with deposits of less than 10 per cent for the first time since the Bank started asking them this question in 2013. The survey also showed mortgage availability fell for borrowers with larger deposits of more than 25 per cent.
Mortgage slowdown: The amount of credit available to homebuyers dropped between June and September
Demand from potential home buyers for mortgages also saw a significant decrease.
The tightening in lending was largely due to banks’ reduced risk appetite and concerns about the outlook for house prices, the Bank of England suggested. Yesterday, a report by the Centre for Economics and Business Research predicted that property values will fall next year.
But borrowers may already be seeing an improvement. The past month has seen a series of lenders cut mortgage rates, with five-year fixes driven back below 3 per cent.
The drop in available credit came almost straight after regulators required lenders to impose tighter affordability checks on new borrowers, in the form of the Mortgage Market Review.
This – implemented in April – means lenders now have to stress-test borrowers to ensure they can afford higher interest rates and probe finances more stringently.
The survey said: ‘Many lenders noted that operational issues associated with the implementation of the MMR had pushed down on credit availability over the summer.’
A string of lenders have slashed their mortgage rates in recent weeks, which experts have put down to lenders looking to meet end-of-year targets by sharpening up their ranges.
The Bank’s report indicates that this trend is set to continue, as lenders said they expect their profit margins on home loans to narrow further in the coming months.
Demand for buy-to-let lending was reported to have increased slightly.
Last week, separate Bank of England data showed mortgage lending in August fell to a three-month low.
Meanwhile the Nationwide Building Society in its monthly house price index reported values fell in September, the first month-on-month drop in 17 months.
However, lenders said in the Bank of England survey that they expect both demand for mortgages and willingness to supply them to bounce back strongly in the final three months of the year, citing a desire to rebuild market share.
Despite the blip recorded in the Nationwide index and the small falls predicted by CEBR for next year, average house prices are still nearly 10 per cent higher than a year earlier, though this masks big regional variations.
House prices in London are more than 30 per cent above their 2007 peak, while in the rest of the country they are just one per cent higher.
Howard Archer, economist at IHS Global Insight, said: ‘Going forward, we suspect that the upside for buyer interest will be limited by more stretched house prices to earnings ratios, the prospect that interest rates will start to rise before long – albeit gradually – and tighter checking of prospective mortgage borrowers by lenders.’
Elsewhere, the report showed the total amount of unsecured credit made available to households increased in the last three months and lenders expect a further rise in the build-up to Christmas.
Lenders have been reporting increases in unsecured credit availability for most of the past two years. For credit card lending, demand was reported to have increased between June and September, following declines in the previous three quarters.