Mortgage availability for low-deposit borrowers expected to decrease

Borrowers with smaller mortgage deposits, such as first-time buyers, will face a tougher time finding a home loan in the coming months, a Bank of England survey of lenders suggests.

Looking ahead until the end of May, banks and building societies expect to see mortgage availability decrease, particularly for households with deposits of less than 25%, the Bank’s latest Credit Conditions Survey found.

Since the survey was carried out, some lenders have temporarily restricted mortgage availability, with Nationwide Building Society pulling its fixed-rate and tracker mortgages above 75% loan-to-value (LTV) from sale at the end of May.

Research from Moneyfacts.co.uk in early April found that the number of residential mortgages generally on the market has halved in recent weeks.

The Bank of England’s survey found that the availability of other types of credit to households is also expected to decrease in the months ahead – alongside falling demand from borrowers.

Lenders reported that the lengths of interest-free periods on credit cards for balance transfers and purchases are expected to decrease in the second quarter of 2020.

This would give new borrowers less time to clear balances on their plastic before interest kicks in.

The latest survey was carried out between March 2 and 20 – just before stricter lockdown measures were put in place.

The findings are based on the opinions the lenders in the survey, not those of the Bank of England.

In recent weeks, safety net measures have quickly been brought in to give borrowers some time to allow their finances to recover from the impact of coronavirus. Many households have suffered income shocks, having lost out on work, been furloughed, or had their pay cut.

Lenders have introduced temporary measures to help borrowers through the coronavirus pandemic, including mortgage payment holidays, credit card payment freezes and £500 zero-interest buffers on overdrafts.

The housing market has ground to a near-halt in recent weeks, with many households who had been on the brink of moving currently using mortgage-offer extensions to pause their moving plans until a later date.

Commenting on the report, Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics) said: “The latest numbers reflect the calm before the storm when the virus blew the property market out of the water.

“However, it will not be until subsequent reports that we see the full impact of Covid-19 on business activity and values. This will be determined by the length of time before restrictions are lifted and the damage suffered by the economy during that period.”

The survey also found that the availability of credit to businesses is expected to increase for firms of all sizes in the coming months.

Lenders also expect demand for corporate lending to increase for businesses of all sizes in the second quarter of 2020.