Lenders warn of new mortgage freeze

| July 2, 2010 | 0 Comments

UK banks and building societies are expecting mortgages to be “less readily available” in the next three months, as the wholesale money markets that lend to the lenders “tighten”.

In its latest Credit Conditions Survey covering the three months to early June 2010, the Bank of England also reports that a slim majority of lenders actually lent more to homeowners, but only to those with large deposits.

Furthermore, demand for lending for house purchases weakened for a second consecutive quarter, despite lenders’ expectations of stronger demand.

The weakness could be due to uncertainty about the outlook for interest rates, employment and the macroeconomy more generally, lenders suggest.

More positively, the default rate on secured loans to households fell “unexpectedly” (continuing the downward trend begun in the second half of last year) although many lenders commented that a deterioration in the economic outlook could cause the rate to rise once more.

Maximum loan-to-value ratios were reported to have increased in the three months to early June but lenders are not anticipating that trend to continue.

Maximum loan-to-income multiples were broadly unchanged in the past three months and are expected to remain stable in the coming quarter.

Finally, demand for remortgaging rose in the three months covered by the survey but is likely to level off, given that many homeowners continue to borrow at “attractively low” standard variable rates.

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