Lenders expect that overall spreads on securing lending to households, which have widened during the third quarter of this year, will continue along this path in Q4.
Responding to the Bank of England’s quarterly credit conditions survey, lenders provided a negative balance reading of 79.1 when asked how spreads changed in the three months to the end of August 2020, meaning they widened, and negative 32.2 for the next three months.
For comparison, when asked these questions in Q2 this year, lenders provided balances of negative 61.8 and negative 25.5, respectively.
Demand for house purchases over the last three months has ballooned, report lenders, giving a positive 95.6 reading, but with a negative 1.9 reading for the next three months, they expect this to tail off somewhat.
Meanwhile, demand for remortgages over the last three months faded, with a negative 13.5 reading given, but this should reverse as the year closes – a reading of positive 8 was given by lenders for Q4.
At the same time, lenders said that availability for secured credit overall had increased over the past three months, giving a reading of positive 9.5, but that this will reverse in Q4, supplying a reading of negative 3.5.
When asked how credit scoring criteria has changed over the last three months, the provided reading of negative 44.1 means that in many cases it has tightened. For the next three months, lenders gave a reading of negative 4.7 – securing a mortgage will become slightly more difficult in the run up to Christmas.
SPF Private Clients chief executive Mark Harris says: “Borrowers who have found it harder to get a mortgage will not be surprised to hear that lenders tightened criteria in the third quarter and expect to tighten further.
“Mortgage pricing is on the rise, a trend expected to continue over the course of the rest of the year. With the base rate likely to remain where it is, or even fall further, and Swaps continuing to bump along at low levels, lenders are taking the opportunity to improve their margins and profitability.”
Coreco managing director Andrew Montlake adds: “The availability of secured credit to households may have increased slightly in the third quarter but the economy was in hard lockdown during the second quarter so an increase was almost inevitable.
“The widening of spreads during the three months to the end of August, and the expectation of further widening to come is a better reflection of lender anxiety around economic conditions.
“We’re now starting to see demand for mortgages drop off at higher LTVs as first-time buyers with small deposits are increasingly aware that the chance of getting a mortgage agreed are somewhere between slim and zero.
“It’s a travesty that so many FTBs will now miss out on the Stamp Duty holiday introduced over the summer.
“We all know the economic pain that’s in the post so it’s no real surprise that the banks are pulling down the shutters for those with smaller deposits.
“What we need to avoid, however, is banks catastrophising and pulling products for more robust borrowers at lower LTVs.
“There’s no sign of this happening yet but the storm clouds are gathering over the economy and the prospect of a ‘short-circuit’ lockdown could see lenders circle the wagons.”
