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Getting a mortgage will be harder and more expensive in Q4

Paloma Kubiak
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Paloma Kubiak

Getting a mortgage is expected to become more difficult between September and November as banks tighten criteria, according to the Bank of England’s Credit Conditions survey.

The sentiment survey of lenders highlighted that they expect their credit scoring criteria for mortgages to get tighter in quarter four.

Credit scoring had already tightened in quarter three which covers the three months to the end of August.

And as criteria tightens, mortgages are expected to become more expensive in the coming months.

In terms of mortgage pricing and margins, lenders reported that overall spreads on secured lending to households relative to the Bank Base Rate or the appropriate swap rate widened in Q3, and were expected to widen further in Q4.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Borrowers who have found it harder to get a mortgage will not be surprised to hear that lenders tightened criteria in the third quarter and expect to tighten further in the run-up to the end of the year.

“Concerns about the impact of the pandemic on earnings and what will happen to property prices, particularly for those borrowing at high loan to values (LTV), is behind this growing caution.

“Mortgage pricing is on the rise, a trend expected to continue over the course of the rest of the year. With base rate likely to remain where it is, or even fall further, and swaps continuing to bump along at low levels, lenders are taking the opportunity to improve their margins and profitability.”

More high LTV lending

Despite stricter lending policies, banks expect the availability of mortgages and secured loans, which increased slightly in quarter three, to remain unchanged until the end of November.

Banks expect the availability of mortgages to those with less than 25% equity in their homes to improve slightly over quarter four.

The survey also reflected a greater willingness to lend to borrowers with less 10% equity in their homes over the next quarter.

Banks reported that demand for remortgaging decreased in quarter three as purchasing a home became borrowers’ priority.

While borrowers’ appetite for house purchasing is expected to remain the same over the quarter, remortgaging is expected to increase.

Default rates on mortgages were unchanged in quarter three but are expected to rise in the three months to the end of November.