Lenders predict mortgage approvals will fall in the coming months
Bank of England’s quarterly credit conditions survey suggests lenders are becoming more cautious ahead of an expected move by Governor Mark Carney and the Financial Policy Committee (FPC) to rein in the market.
Tough new rules designed to prevent people from taking on unaffordable mortgages have not dampened demand for debt nor slowed the proportion of mortgages being approved, according to a Bank of England survey
The proportion of mortgages approved in the second quarter was unchanged, the Bank said, despite lenders’ expectations of a "significant decrease" Photo: Alamy
By Szu Ping Chan
Britain's biggest lenders expect mortgage approvals to “fall significantly” in the coming quarter as banks reduce risky lending, according to a Bank of England survey.
The Bank’s quarterly credit conditions survey suggested lenders were becoming more cautious ahead of an expected move by Governor Mark Carney and the Financial Policy Committee (FPC) to rein in the market. Banks and building societies said a desire for greater market share would be offset by a “lower appetite for risk” in coming months, resulting in fewer loans.
Mr Carney is expected on Thursday to unleash new measures to control the housing market in an attempt to curb risky mortgage lending. The FPC has the power to force buyers to raise larger deposits, or impose new limits on the amount people can borrow.
Monday’s survey suggests many lenders expect the FPC to introduce a loan-to-income (LTI) cap. “Some lenders suggested that a tightening in lending standards on large loans with high LTI ratios may push down their approval rate a little,” a Bank statement said. This is the first time lenders have expected maximum LTI ratios to fall since the first quarter of 2012.
The decision by state-backed lenders Lloyds Banking Group and the Royal Bank of Scotland to limit mortgage lending on loans above £500,000 is also expected to reduce average loan-to-income ratios over the coming quarter.
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However, the data also showed that tough new rules resulting from the Mortgage Market Review (MMR) designed to curb risky mortgage lending have neither dampened the rate of applications nor affected the proportion of mortgages that are finally approved. Lenders reported a “significant” rise in demand for mortgages in the three months to May 31, with an expected further increase in the coming three months.
Final mortgage approvals have been falling in recent months, reaching a nine-month low of 62,918 in April. However, Monday’s figures showed that the proportion of mortgages approved in the second quarter was unchanged from the three months to February, despite lenders’ expectations of a “significant” decrease.
This suggests a large proportion of the recent slowdown in mortgage lending is likely to have been caused by administrative restrictions linked to the MMR rather than its tougher lending criteria. Mortgage interviews now take much longer, while staff retraining means fewer applications can be processed. While the MMR rules did not come into effect until April 26, many lenders began assessing mortgages using the new rules prior to this.
Monday’s data showed an “increase in the willingness” to lend at loan-to-value (LTV) ratios above 90pc in the second quarter. “Maximum LTV ratios increased in Q2 and maximum loan-to-income ratios also increased slightly,” the Bank said.
The survey also suggested borrowers are rushing to lock-in their mortgage rate in anticipation of rate rises.
The proportion of households taking out new mortgages on a fixed rate deal increased to 81pc in the first three months of 2014, compared from 70.7pc in the same quarter of 2012. However, just 35pc of the existing stock of loans are tied to a fixed rate, compared with around 50pc before the crisis. This suggests more households are vulnerable to interest rate rises.