Lender credit conditions improving
Lenders reported rising credit availability for both commercial and residential property in the final quarter of last year in the Bank of England’s latest credit conditions survey.
The survey reported that a positive balance of 5.4% of lenders increased the availability of mortgages to households in the final quarter of 2015.
This was down from 15.5% in Q3, and also a little below last quarter’s expected outcome, although availability is again expected to rise faster in the first quarter of 2016.
Market share objectives, a growing appetite for risk and improvements in wholesale funding conditions were all cited as reasons for rising availability.
But the factor most frequently given, with a positive balance of 21.3%, was house price expectations – suggesting that lenders are optimistic about the future path of prices.
Today’s data also provided a first glance at buy-to-let demand following the stamp duty changes announced in the Autumn Statement.
A balance of 21.6% of lenders reported growing buy-to-let demand in Q4 – suggesting that investor appetite has not been killed off.
Additionally, a positive balance of 29.7% of lenders expect rising buy-to-let demand in the first quarter of 2016 – the highest reading for expected demand on record.
This suggests that demand will remain healthy until at least April this year, when the new tax comes into force.
Hansen Lu, property economist at Capital Economics, said: “Regulatory restrictions on maximum loan-to-income ratios appear to still have bite. Having risen in Q3 last year, the latest data shows that maximum LTIs fell once again in Q4, and that they are expected to fall further over the beginning of this year.
“What’s more, loan application approval rates fell, and the average credit quality of new lending rose, also pointing to tighter lending standards.
“Driven by a reported improvement respondents’ assessment of the economic outlook, credit conditions expectations saw a sharper rise, from 0.8% to 3.4% over the same period.
“That said, only 0.6% of lenders stated that rising capital values would lead them to boost credit to the sector in the first quarter of 2016, suggesting an underlying concern that pricing is too stretched. “In all, it is likely that further improvements in credit conditions will be muted.”
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said: “A healthy supply of credit means would-be homeowners who meet affordability criteria can look forward to benefitting from competition between lenders.
“Affordability remains under pressure however, and it is important that policymakers work hard to ensure that the housing market can support people’s home owning aspirations.”
Williams added that positive expectations in the buy-to-let sector could be an early warning sign that outside interventions risk causing a spike of activity and then a drop-off once new stamp duty rates for landlords and second homeowners take effect in April.
He said: “The increase in buy-to-let lending has been from a far lower base than in other sectors and there are legitimate fears that – by cutting landlords’ mortgage tax relief, increasing stamp duty and considering new macro-prudential controls on lending – there will be unintended consequences which damage the private rental sector and leave the housing market no better off.”