Lenders expect mortgage demand to wane in Q1

interactive investor comments on latest Bank of England Credit Conditions Survey.

Commenting, Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The survey shows that lenders have the money to lend and are keen to do so, but demand for mortgages for house purchases has cooled – although many mortgage brokers argue the opposite.

“The end of the stamp duty holiday has taken some of the heat out of the housing market. The focus appears to be shifting to remortgages, which saw a significant jump in activity in Q4 2021 as borrowers with home loans set to mature opting to lock into a fixed-rate deal ahead of the highly touted rise in interest rates December.

“While lenders expect demand for mortgages for house purchases to wane in Q1 this year, the demand-supply mismatch in the housing market means that property prices might prove more stubborn. But with a cost-of-living squeeze, and rates on the up, what happens next is anyone’s guess. Mortgage rates have crept up following December’s interest rate rise, but they remain low by historical standards. So, for many first-time buyers, access to cheap mortgages is not the problem – building a large enough deposit as property prices continue to outpace wage growth is the key challenge.”

Credit cards and loans

Myron Jobson says: “Demand for loans snowballed in the run-up to Christmas despite the rise in the cost of living. The worry that the sheer availability and promotion of credit products will encourage people to spend money they don’t have, which can get them into trouble at a time where budgets are being squeezed.

“Advertising of unregulated buy now pay later (BNPL) schemes are particularly difficult to avoid when shopping online, which could tempt people to delay payment, which can be a slippery slope to being tangled in debt. Worryingly, many people aren’t aware that BNPL schemes are a form of credit.

“Lenders expect demand for loans to increase as consumers brace for the biggest squeeze for a decade, with energy bills alone expected to rise by up to 50% in spring, while fuel prices, the bumper cost of groceries add further strain on household budgets. Those riddled with debts who are struggling to pay might be able to arrange an alternative. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all your options.”

Key points:

• Lenders reported that demand for secured lending for house purchase decreased in Q4 and was expected to decrease in Q1. Demand for secured lending for remortgaging increased in Q4, and was expected to decrease slightly in Q1 (Chart 3).
• Lenders reported that overall demand for unsecured lending increased in Q4, and was expected to increase in Q1. Within the overall figure, demand for both credit card lending and other unsecured lending increased in Q4. Demand for credit card lending was expected to increase in Q1, whereas demand for other unsecured lending was expected to be unchanged in Q1 (Chart 4).
• Lenders reported that the availability of secured credit to households increased in the three months to end-November 2021 (Q4). Lenders expected the availability of secured credit to increase over the next three months to end-February 2022 (Q1) (Chart 1).
• Lenders reported that the availability of unsecured credit to households increased in Q4 and was expected to increase in Q1 (Chart 2).