Interest rates: Higher borrowing costs to dent mortgage lending further, banks report
Mortgage lending is expected to fall in the next quarter with both demand and supply predicted to fall under the weight of the Bank of England’s interest rate hikes.
According to the Bank of England’s credit conditions survey, demand for mortgages fell in the third quarter and is expected to decrease in the fourth quarter.
Banks also reported that they had been lending less, with the availability of secured credit falling in the third quarter with further falls to come.
The most aggressive monetary tightening campaign in recent history has sent a shiver through the housing market with demand tumbling under the weight of higher borrowing costs.
The Bank of England paused its rate hiking campaign last month, holding the base rate at 5.25 per cent. However, analysts are expecting Threadneedle Street to hold rates elevated for longer, meaning that mortgages will remain expensive for some time to come.
Ruth Gregory, deputy chief UK economist at Capital Economics said: “This survey suggests that higher interest rates are weighing more heavily on households’ demand for mortgages and banks have continued to reduce the supply of credit to households.
“As we expect mortgage rates to remain high for around a year, we think this will soon start to weigh more heavily on real activity,”she continued.
The survey showed that households were also struggling to pay off their debts. Default rates on mortgages increased over the quarter and was expected to increase further in the fourth quarter.
Demand for unsecured credit also increased in the third quarter with further increases expected. The increase was mainly driven by credit card debt.
The Bank of England conducts its credit conditions survey every quarter to help it understand trends and maintain financial stability. Lenders are asked to report changes in the previous three months and their expectations for the next three months.
“The results are based on lenders’ own responses to the survey. They do not necessarily reflect our views on credit conditions,” the Bank said.