More demand for secured lending for remortgages 

Michael Lloyd

April 18, 2019

Lenders reported demand for secured lending for remortgaging increased significantly in Q1, with demand expected to increase again in Q2, The Bank of England’s Credit Conditions Survey has found.

However, they also said that demand for secured lending for house purchase was unchanged in Q1, and was expected to decrease in Q2.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “A subdued housing market is making for a very competitive lending market.

“While the Bank of England reports that overall spreads on secured lending to households relative to Bank Rate or Swaps remained unchanged in the first quarter but are expected to widen in the second quarter, we are not so convinced.

“With supply outstripping demand, this is keeping a lid on any mortgage rate increases as lenders compete with each other to attract business. The market is ultra competitive and because of this we expect pricing to remain where it is, with lenders continuing to accept tight margins.

“This is good news for borrowers who will continue to have a good range of products at competitive rates to choose from.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “These figures are always a useful indicator not just of past performance but future activity.

“They show that no change is actually quite good news considering the amount of doom and gloom hanging over the property market, as we might have expected to see a fall in activity.

“Looking forward, the prospects for the market are not exactly exciting given the fairly negative prevailing political news.

“But the spring market has brought more realism to some buyers and sellers and we are seeing evidence of a little bit more optimism although it is very patchy and varies considerably, even in areas which are close to one another.

“Improved first-time buyer demand, taking advantage of greater affordability and almost record low interest rates, as well as reduced competition from tax-suffering landlords, is another small positive.”

Overall spreads on secured lending to households — relative to Bank Rate or the appropriate swap rate — were reported to have remained unchanged in 2019 Q1, however they were expected to widen in Q2.

Lenders reported that default rates on secured loans to households were unchanged in Q1, and expected these to remain unchanged in Q2. Losses given default on secured loans were unchanged in Q1, and were expected to increase over 2019 Q2.

Kate Davies, executive director of Intermediary Mortgage Lenders Association (IMLA), said: “The mortgage market is currently highly competitive: tighter affordability requirements, coupled with Brexit effects on borrower confidence and a subdued buy-to-let market, has spurred lenders to move into the higher loan-to-value space and to explore specialist areas such as later-life borrowing or the self-employed.

“Lenders are likely to be cautious, however, in terms of going up the risk curve: the loans that have been advanced at higher LTVs over the past five years show exceptionally low arrears by historical standards, and this is welcome.

“Consumers have been able to benefit from the market competition and the resulting reduction in mortgage spreads, particular on higher LTV products.

“But, as our recent “New Normal” report identified, with lenders having to hold more capital against mortgages as a result of the changes to the Basel regime, it may be that mortgage spreads cannot go much lower.

“The market is likely to continue to be challenging in terms of the volumes of business that can be written at sustainable margins.

“Lenders will no doubt develop new and innovative products to meet consumers’ needs, but must do so within the inevitable constraints of the regulatory and prudential framework.”

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