The Bank of England’s “Trends in Lending” report included indications from the UK’s major lenders that net lending in May improved as gross lending rose by more than repayments, and was marginally higher than at the start of the year. Lending for house purchase in May contributed to the uplift as remortgaging activity remained subdued.
The Royal Institution of Chartered Surveyors’ new buyer enquiries balance remained positive in May, suggesting rising demand for house purchase.
But the major UK lenders reported that demand for lending for house purchase remained subdued.
Overall, mortgage market activity was reported to have been little changed in recent months with lenders saying they expect activity to remain broadly flat in the near future.
The major UK lenders said the suspension of Home Information Packs might induce some sellers to enter the market, though the scale of any impact on mortgage lending was unclear.
The Bank said first time buyers were still being constrained by tight credit conditions in the mortgage market and that although there has been an increase in the number of advertised products, including for loan to value (LTV) ratios of over 75% often used by first-time buyers, the median LTV ratio on new loans to first-time buyers has changed little over the past six months.
The number of advertised buy-to-let mortgage products has risen in recent months and based on data from the Council of Mortgage Lenders (CML), the share of gross mortgage lending advanced for BTL purposes has increased over the past six months.
But despite the entrance of new buy-to-let lenders Aldermore, Kensington and Precise Mortgages, the major lenders reported that the buy-to-let market continued to be constrained by the limited number of active lenders.
Mortgage arrears rates fell in Q1 2010 and the Bank said that major lenders in the UK expected arrears to remain broadly stable in the coming months though there were concerns about further financial distress for individuals. Claims for possessions issued in the courts fell for the sixth successive quarter in Q1 2010 and the number of properties taken into possession fell slightly.
Mortgage spreads on new lending — over reference rates such as Bank Rate or swap rates — have been elevated since the start of the financial crisis, impacting on the pricing of mortgage prodcuts.
The Bank’s measure of the overall effective interest rate on new mortgages was little changed in April at 3.9% and advertised mortgage rates were also broadly unchanged in May.
The Bank’s data set covers the major UK lenders including Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland, which collectively accounted for 75% of the stock of mortgage lending at the end of 2009.
