More evidence has emerged of a housing market slowdown, with new data from the Bank of England revealing a significant drop in demand for mortgages for house purchases in the last three months of 2014.
The Bank’s credit conditions survey, published today (6 January), revealed that demand for secured lending for house purchase was reported by lenders to have “fallen significantly” in Q4, compared with lenders’ expectations of a rise.
This means the net percentage demand balance was the lowest since the third quarter of 2008. A “significant” fall in demand was reported both for prime lending and buy-to-let lending.
However, the Bank’s report noted that demand for secured lending for house purchase was expected to increase slightly in the first quarter. Similarly, demand for secured lending for remortgaging fell in the fourth quarter, but was expected to increase in the first quarter.
Lenders also reported less willingness to lend at loan-to-value ratios above 90 per cent and maximum loan to income ratios also “fell significantly”.
The latter could be due to the new regulations where lenders must ensure that higher loan to income multiples of 4.5x do not make up more than 15 per cent of their mortgage book.
Lenders also expect LTI ratios to fall slightly further in Q1.
Some lenders added that they had introduced policies which restrict lending at high LTI ratios for specific types of borrowing.
Responding to the BOE’s report, Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Indeed, things slowed to such an extent that demand was at its lowest since the third quarter of 2008, while there was also a decline in buy-to-let lending.
“This caught lenders out as they had expected mortgage demand to rise but they still expect a slight increase over the next three months, perhaps as buyers in the mainstream market take advantage of the reduction in stamp duty.”
Spreads between the cost of borrowing to lenders and the rate charged to borrowers narrowed significantly as lenders competed with each other for business, the report found. Mr Harris said that as this continues into the first quarter 2015, lenders expect to make further rate cuts.
“There are some great deals out there for borrowers at the moment, particularly on longer-term fixed rates. However, some people will find it harder to get mortgages as lenders reported less willingness to lend at more than 90 per cent LTV and also a fall in loan to income ratios.
“The mortgage market review has resulted in tighter criteria and certain borrowers continue to be hit hard,” he added.
The last credit conditions survey, between June and September, recorded the biggest fall in the value of credit supply since the end of 2008, when Lehman Brothers collapsed.