Home loans set to become easier
Mortgage availability is set to increase further in the coming months as banks and building societies have become more willing to lend to people with deposits below 10%, a Bank of England survey has found.
The Bank's latest Credit Conditions Survey, covering the first quarter of this year, found that demand from home-buyers for mortgages fell in the first three months of the year, continuing a trend seen since the middle of 2014.
The fall in demand for prime lending was the most significant seen since 2008, with some lenders putting the recent falls in demand for mortgages down to concerns about housing affordability and uncertainty about the outlook of the housing market.
But lenders expect demand for mortgages for house purchase, and particularly prime lending, to increase in the coming three months.
There were also signs that mortgage rates, which have already been chopped to some of the lowest levels that lenders have ever offered, are poised to edge down further. Lenders said they expect to see a significant narrowing in their profit margins on mortgages and a further slight reduction in mortgage fees in the next three months.
A slightly increased risk appetite among lenders is set to boost mortgage availability further in the coming quarter and competition is also being buoyed by lenders looking to meet their market share objectives, according to the report, which surveys banks and building societies every three months to understand lending trends.
It said that lenders reported a slight increase in their willingness to lend to borrowers with a deposit of less than 10% in the first quarter of this year.
Lenders said they expect to see an increase in the proportion of home loan applications being approved in the next three months.
Meanwhile, credit availability for small and medium-sized businesses was unchanged in the first three months of this year, but it did increase for large corporates.
This reflected demand for lending, which was unchanged among smaller businesses but increased for large corporates, the report found.
In the coming three months, lenders expect credit availability for small businesses to increase significantly, while credit availability for medium-sized companies and large corporates remains unchanged.
Lenders also reported that the total amount of non-mortgage credit made available to households increased significantly in the first three months of 2015, driven by lenders wanting to meet their market share objectives and a greater appetite for risk. Lenders expect this credit availability to be unchanged in the coming three months.
Lenders said they have increased the length of interest-free periods available on balance transfers on credit cards. They have also loosened their credit scoring criteria significantly.
Some lenders also reported that a fall in the rates offered on personal loans had encouraged a higher quality of borrower to apply for the deals.
Recent figures from the Office for National Statistics (ONS) showed the Consumer Price Index (CPI) measure of inflation fell more steeply than expected to an all-time low of 0% in February.
This has bolstered expectations that any hike in interest rates - which have been held at 0.5% for six years - is still a long way off.
Matthew Pointon, a property economist at Capital Economics, said the survey indicates that a recent recovery seen in the number of mortgages being approved is set to continue.
But he cautioned: "Stretched first-time buyers are still likely to find it tough to secure a loan."
Mr Pointon said that the maximum that lenders are willing to lend in relation to borrowers' incomes has been falling, which he said largely reflects the impact of toughened mortgage lending rules introduced last year.
Under the new Mortgage Market Review (MMR) rules, mortgage applicants have to produce more evidence about their spending habits, so that lenders can make sure that they can truly afford their mortgage, both now and when interest rates eventually start to increase.