Brian Murphy is head of lending at Mortgage Advice Bureau
The Bank of England’s latest Credit Conditions Survey has just reported an increase in the availability of secured credit to households in the last quarter.
While mortgage activity levels have been up and down all year, the overall trend has been an increased level of business compared to last year.
The summer months are traditionally a quieter time but in the last quarter activity was given a boost by an increase in availability caused by the easing in wholesale funding conditions.
This has resulted in greater pricing competition among lenders and rates – particularly fixed rates – have been falling this year.
In actual fact, falling rates have been something of a long-term trend since they peaked in 2008.
Since then the average fixed rates have fallen by almost two percentage points, and the average 2-year tracker has fallen by more than two and a half percentage points.
Looking at these figures it explains why the percentage of borrowers making purchase applications are increasingly choosing fixed rates.
In August, the number rose to 83.1% of all applications – the highest level since June 2009. And in terms of remortgage applications the percentage is even higher, and the level of applications for fixed rate deals has reached 84.2% – some 15.8% higher than at the start of the year.
Remortgagors who are coming off their last deals are now seeing real value in the rates on offer and are looking to lock in to the security of this.
Looking forward to Q4 the BoE’s Credit Conditions Survey found lenders are more pessimistic about the outlook for wholesale funding, but they expect this to be more than tempered by the expected impact of the Funding for Lending Scheme and lenders’ own market share objectives as they move towards year end.
As such the survey triumphantly reports that the “availability of secured credit [is] expected to increase significantly over the next three months, to borrowers spread across LTV ratios.”
This is great news, and our figures suggest this is already happening. However, the crucial phrase is “borrowers spread across LTV ratios”.
Compared to pre-crisis levels activity is well down and so any increase in product availability is to be welcomed, but for the market to function smoothly the focus needs to be on new borrowers and remortgagors coming through at high LTV levels if the market as a whole is to grow.