Lenders report Q1 demand drop: BoE

Lenders report Q1 demand drop: BoE

Demand for secured lending for house purchase fell significantly in the first quarter, for the third successive quarter, but was expected to increase in the second quarter, according to the Bank of England.

The credit conditions survey revealed that the fall in demand was significant in prime lending, where the net percentage balance was the lowest since the third quarter of 2008.

Some lenders attributed the reduction in secured lending demand over recent quarters to a combination of changes in regulatory policy, concerns about housing affordability and uncertainty about the outlook for the housing market.

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Similarly, demand for secured lending for remortgaging also fell significantly in Q1, but was expected to increase slightly in Q2.

For the tenth successive quarter, spreads on secured lending rates to households — relative to Bank Rate or the relevant swap rate — narrowed in Q1. The narrowing in spreads came at the same time as a fall in banks’ internal transfer prices, as reported in the most recent bank liabilities survey.

Lenders expected a further significant narrowing in mortgage spreads and a further slight reduction in fees over the next three months, according to the report.

Stephen Smith, director at Legal and General Mortgage Club, commented that “a slowdown in the break-neck speed of house price growth witnessed recently is no bad thing, as in order to have a healthy market, prices need to rise broadly in line with inflation”.

“While these figures are of course interesting and worthy of note they do seem to indicate nothing more dramatic to me than the seasonal nature of the UK housing market.”

He noted that at L&G they have seen the pace of activity increasing rather than decreasing, as the intermediary led share of mortgage transactions increases, with many lenders retrenching following the Mortgage Market Review.

“Our own completion figures are up 12 per cent on where we were at this time last year and we expect the market to improve as the year wears on reflecting how well the brokers and lenders we work with have adapted to changing market conditions.”

Mr Smith expects overall gross mortgage lending to reach approximately £225bn in 2015.

“House prices are rising by about 8 per cent a year so if the same number of mortgages are written in 2015 as last year, this should see an increase in lending volumes.

“Additionally new entrants to the lending market and a low interest rate environment combined with changes to stamp duty rules should all act as a strong tail wind for lenders and the industry as a whole.”