Although lenders reported demand for house purchase and remortgaging increased in Q4, it is expected that this will decline in the first three months of 2025, a survey from the central bank found.
The Bank of England (BoE) Credit Conditions Survey showed that lenders gave a reading of 33.3% for house purchase mortgage demand in Q4, up from a score of minus 0.6% in Q3. Remortgage demand increased from minus 17.7% in Q3 to 60% in Q4, lenders reported.
Looking forward to the next three months, it was predicted that appetite for lending for house purchases would slip to minus 10.6% and remortgage to minus 20.1%.
Lenders also suggested that demand for buy-to-let (BTL) lending would decline, with a reading of minus 2.5% for the next three months. However, activity also rose across the market, as a score of 23.9% was given for BTL purchase demand in Q4, up from 1% in Q3.
Tom Cuppello, director of risk at independent financial services consultancy Broadstone, said: “The Bank of England’s latest Credit Conditions Survey highlights increasing demand for borrowing through the final quarter of the year, despite the increasingly strained economic outlook.
“Activity is likely to be depressed in the opening quarter of 2025, which suggests the deterioration in the nation’s finances is likely feeding through into household behaviours on their finances.”
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More availability of lending
Despite the projected fall in demand, lenders said the availability of secured credit to households would improve in Q1.
This already rose from a reading of 10% to 22.4% from Q3 to Q4, and was expected to rise further, with lenders giving a score of 16.4% for the first quarter of 2025.
When asked what would impact the changes in finance availability, lenders gave higher scores for market share objectives and a changing appetite for risk, suggesting these were the main influences.
The availability of credit for borrowers with low and high loan-to-value (LTV) ratios is expected to stay stable in the next quarter.
Cuppello added: “It is pleasing that the availability of credit appears to be continuing to rise, offering more options to consumers. However, borrowers should be mindful of potential cost increases and increasing defaults seen recently, especially given the current market uncertainty.”
Overall spreads on mortgage rates relative to the base rate or appropriate swap rate were unchanged in Q4 and were expected to narrow slightly in Q1.
The rate spread is the difference between two interest rates.
Small rise in defaults
Lenders reported that default rates rose slightly in Q4, with a reading of 7.8% for the period. This is expected to stay steady in Q1, according to a reading of 3.5%.
Meanwhile, the losses given default on mortgages rose in Q4 and were predicted to increase marginally in Q1.
