In the Bank of England’s (BoE’s) quarterly Credit Conditions Survey for Q3 lenders revealed the availability of credit to households had increased slightly in the three months to the end of August.

Meanwhile they also said there had been increased demand for house purchase finance during this time – driven largely by the chancellor’s stamp duty holiday. However there had also been a reduction in those wanting to remortgage.

The banks and building societies surveyed by the BoE also reported a widening of spreads in Q3 and said the net percentage balance for changes in default rates on secured loans to households remained unchanged during this time.

Adverse credit

But going forward these lenders forecast while demand for both house purchase credit and remortgaging would increase in Q4, it would become more challenging for borrowers to take out a mortgage.

Indeed, they said credit scoring criteria for loans were expected to tighten further in Q4, which runs from September to the end of November.

Joshua Elash, director of property lender MT Finance, said: “Conditions will remain favourable in the immediate term. The Ghost of Christmas Future lies in wait however in the expected tightening of credit scoring conditions in the secured credit space.

“As the economy deteriorates, and unemployment numbers continue to creep up, adverse credit could seriously impact the availability of credit to the average household.”

Meanwhile, Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “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 in the run-up to the end of the year.

“Concerns about the impact of the pandemic on earnings and what will happen to property prices, particularly for those borrowing at high loan-to-values, is behind this growing caution.”

Rate rises

Lenders reported that overall spreads on secured lending to households — relative to Bank Rate or the appropriate swap rate — widened in Q3, and were expected to widen further in Q4.

Andrew Montlake, managing director of mortgage broker Coreco, said: “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.

“The expectation of higher default rates and stricter credit scoring criteria in the fourth quarter is also a sign of the direction the wind is blowing. In some cases lenders are already raising rates to stave off demand.”