Commenting, Capital Economics’ Paul Diggle said: “After posting a rise in Q1 2010, the proportion of mortgages advanced on an interest-only basis in Q2 fell 3.5 percentage points to 33.4%.
“With a possible regulatory crackdown on interest-only mortgages in the offing, we expect this trend to continue well into next year.
“The FSA also appears keen to outlaw self-certification mortgages. Perhaps because of this the percentage of mortgages made without the borrower providing evidence of their income fell 3.6 percentage points in the second quarter to 23.9%, the lowest share since these statistics started in 2007.
“However, not all the evidence pointed to tighter lending standards. As a proportion of total lending, advances at LTVs of 90% or higher actually rose marginally, from 1.6% to 2.1%, but this is way down on the average of 14% during 2007.
“Lending in the more modest 75%-90% LTV range also increased fractionally, from 25.4% to 27.1% of total advances.
“The proportion of new lending done at variable rates remained high at 60.9%. It seems that many borrowers share our medium-term outlook that underlying price pressures are fading and the base rate is set to remain low for an extended period.
“As expected, the FSA data showed arrears and possessions falling in the second quarter, in line with the more timely CML data. There were 37,248 new arrears cases in Q2, although the total number of loan accounts in arrears fell by 10,675 (or 3%) to 351,123. There were 9,978 new possessions in the second quarter, which represents the lowest amount in more than two years.
“However, with the fiscal tightening set to squeeze household incomes further and unemployment set to increase, a renewed rise in arrears and possessions cannot yet be ruled out.
“The latest mortgage lending statistics do not offer a clear message on whether credit conditions are loosening or tightening.
“Although lenders appear increasingly reluctant to lend on an interest-only basis or to borrowers who are unable or unwilling to provide evidence of income, there are tentative signs that LTVs are improving, albeit from very subdued levels.”
