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House purchase lending dips but credit conditions tipped to ease in Q4

Written by: Samantha Partington
Homebuyer demand for mortgages cooled between June and August and is expected to decline further while remortgaging activity continues to gather pace.

Meanwhile, secured credit availability increased over the same period and is expected to continue increasing throughout Q4, according to the Bank of England’s Credit Conditions survey.

Mortgage lenders were asked to give their opinions on credit conditions in quarter three, which in this series runs from June to August, and compare this with the past quarter and quarter four which ends in November.

Lenders reported a tightening of credit scoring compared to the previous three months and fewer lenders said they were willing to advance home loans to borrowers with 10% equity or less.

But there is optimism that both credit scoring as well as an appetite to lend at 90% loan-to-value and above will improve in the three months to the end of November, improving the supply of credit. Consequently, the proportion of approved mortgage applications is expected to improve in Q4.

However, lenders have warned that they expect default rates on secured lending to rise in Q4.

Meanwhile overall spreads on secured lending, relative to the bank base rate or appropriate swap rate, narrowed in quarter three and are expected to narrow further in Q4.

Victoria Scholar, head of investment at Interactive Investor, said: “UK lenders expect default rates for secured and unsecured consumer borrowing to rise in the final quarter as the cost-of-living crisis takes its toll.

“The prospect of higher interest rates, the end of the furlough scheme, a cut to universal credit and rising inflation could contribute to the potential increase in default rates among consumers.

“The pound continues to make headway in today’s trade, pushing above $1.37 scaling two-weeks highs amid rising expectations of a rate hike this year from the Bank of England and support from the hope that the EU and UK might agree on changes to the Northern Ireland protocol.”

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