Mortgage lending could tighten further in Q3

Lenders fear residential lending could be restricted further over the next three months, according to a Bank of England (BoE) report.

The latest BoE credit conditions survey showed household demand for mortgages and other secured credit did weaken in Q2, which is unexpectedly also the case with credit demand from large corporates.

A small number of providers reported lending more to borrowers with a higher than average Loan To Value (LTV) but lending was still restricted for those with smaller deposits.

Lenders expected greater demand from borrowers over the last three months, with the Stamp Duty changes and the end of the cold weather, but were disappointed.

Providers suggested continued uncertainty over interest rates and employment alongside the macroeconomy explained the demand weakness.

Lenders reported some increased demand for remortgage funds for the first time since 2008, but few felt this would continue with SVRs at such low levels.

The number of borrowers falling into arrears fell unexpectedly in Q2 and lenders predict this will stay at similar levels in Q3. The number of defaults also fell for the third straight quarter, according to the report.

Simon Rubinsohn, chief economist at RICS, says: "Significantly, from a property market perspective, the availability of credit over the past three months appears to have increased both in the residential and the commercial sectors.

"However, against this backdrop, the likelihood is that the finance for the property market will continue to be in short supply for some time to come. The construction sector with its need for development finance will be particularly badly affected by this.

"Interestingly, the forward looking indicator on loan availability for the residential sector in the Credit Conditions Survey spells this out - with the series turning negative for the first time since the end of 2008."