Mortgage demand cools amid economic worries

Demand for mortgages to buy a home in the UK has declined in the last three months of 2021 and will continue to subside over the next three months, although credit conditions for borrowers are expected to remain flexible, according to a closely watched investigation.

Following the end of a stamp duty holiday in England and Northern Ireland, mortgage lending declined in the final quarter of 2021, according to the Bank of England’s Quarterly Credit Conditions Survey. Asked as fears of rising interest rates mount, lenders predicted it would pull back further in the current quarter.

But mortgages are also expected to become more widely available as lenders anticipate easing terms for borrowers with smaller deposits. In the survey, which measures the net balance of opinion among respondents, the number of lenders predicting an easing in credit conditions over the next three months surpassed those who said it would tighten by 15%.

Last year’s housing market was characterized by a surge in the number of sales, fueled by stamp duty holidays and second home buyers, and soaring house prices. But the picture for 2022 is dominated by expectations of mortgage interest rate hikes and a shortage of supply as fewer homes come up for sale.

According to Andrew Wishart, real estate economist at Capital Economics, the Bank’s regular survey suggested that lenders had a favorable view of the course of the pandemic recovery and were increasingly confident in the sustainability of house prices, which which gave them more appetite to lend.

“A balance of 30.7% of lenders said they expected to be more willing to lend to buyers with less than 10% down payment, suggesting that concerns about falling house prices eased further,” he said.

Although the outlook for credit conditions is positive, the prognosis for mortgage lending activity as a whole is harder to read as mortgage rates remain attractive but rising inflation threatens business and consumer confidence. consumers, and future mortgage rate hikes could exacerbate problems for those struggling to pass lenders’ affordability tests.

Some experts expected mortgage activity to pick up in the first three months of this year as homebuyers and those looking to remortgage look to lock in low rates ahead of further expected mortgage rate hikes, following December’s hike in the Bank of England’s main interest rate. from 0.1 to 0.25%.

Anthony Codling, managing director of property platform Twindig, said he was surprised that lenders were expecting a drop in demand. “We expect remortgage activity to increase as homeowners seek to secure attractive mortgage rates and home buying activity to increase as the UK economy begins to reopen and the holiday season begins. spring sales begin.”

A balance of 70% of lenders signaled higher demand for remortgage in the fourth quarter – up from 35% in the third quarter – but the survey also found that more lenders expected remortgage to pull back over the past few months. next three months.

Mark Harris, managing director of mortgage brokerage SPF Private Clients, said he thought the outlook for remortgage remained strong. “With many mortgage deals set to expire this year, it is likely that many borrowers will seize the opportunity to remortgage, especially given the cheap solutions still available and the potential threat of rising interest rates. .”

In the short term, the supply of homes for purchase is expected to be a dominant factor for the market, with stock on agents’ books having been sold last year without being replaced in sufficient numbers by new instructions.

In an article examining the housing market in 2021 and the outlook for 2022, Neal Hudson, director of research firm Residential Analysts, said the supply situation was now “severe”, with real estate sites Rightmove and Zoopla, and the body of Rics surveyors all reporting low levels. of stock for sale.

Tighter supply is supporting high prices. But even if mortgage interest rates were to rise significantly in 2022, he added, overall market sales would have to suffer before prices fall.

“Most existing owners will be unwilling to accept lower offers due to price pegs [the bias towards an existing price] while a smaller proportion of the public will be able to afford to borrow the amount needed to buy at higher mortgage rates. This suggests that the most immediate victim of rising mortgage rates is more likely to be transactions than house prices.

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