ortgage blog: Why mortgage approvals are expected to fall

Posted 2 July 2014

A new report has warned that getting a new mortgage is set to become even tougher over the next few months despite a strong demand for finance. The Bank of England's latest Credit Conditions Survey says that lenders expect the rate of mortgage approvals to fall significantly in the coming months even though thousands of buyers will still be seeking home loans.

The Bank of England is concerned about the housing market and could take steps to further restrict mortgage lending.

Demand for home loans likely to outstrip supply

New lending rules will see the supply of mortgages shrink in the next few months, making it even more difficult for potential borrowers to access the finance that they need. That's the conclusion of the Bank of England's latest report which warned that demand for loans remains strong.

The Daily Mail reports that "while supply is predicted to fall, appetite among borrowers remains strong and the survey showed that demand for secured lending by households - essentially mortgages - increased significantly in the second quarter".

The Bank of England believes that rising house prices are a potential risk to the economy and has warned it could take further action to control property values. This could include caps on ‘lending to income' ratios or a withdrawal of the Help to Buy scheme.

"Some lenders noted that changes introduced as a result of the Mortgage Market Review might reduce approval rates somewhat," the Bank said. "In addition, some lenders suggested that a tightening in lending standards on large loans with high loan-to-income ratios may also push down their approval rate a little."

Experts warn against further curbs on mortgage lending

Industry experts cautioned against new curbs on mortgage lending. Henry Knight, managing director of Springtide Capital said: "Intervention from the Bank of England is now looking much more likely as the Government attempts to prevent the formation of a so-called ‘bubble'. However, we are seeing evidence that the market has actually corrected itself, as we had previously anticipated. This is what typically happens when the market becomes overheated and therefore we believe that an intervention from the Bank of England would not only be unnecessary but could also be detrimental for the vast majority of homeowners."

Keith Osborne, editor of Whathouse.co.uk, says: "Just as lenders started to relax their criteria to allow more 90% and 95% borrowing, the Bank looks like it may come along and cap this type of lending in an attempt to control house prices.

"Some lenders have already changed their underwriting in order to make it more difficult for borrowers to access the finance that they need. The market has already reacted to the Bank's concerns and so it makes sense for the Bank to let lenders to change their own criteria rather than stepping in prematurely."

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