John Charcol’s Boulger said: “Reading some media headlines [following the Bank of England’s Credit Conditions survey] one could be forgiven for thinking that mortgage lending is about to collapse.
“The reality will probably be rather different but there is one particular heightened risk compared to 3 months ago – the fear of a Greek Sovereign debt default and the Eurozone contagion that would follow.
The Q2 survey of lenders was undertaken between 20 May and 9 June and although Greece’s credit standing was already under serious pressure 3 months ago it is almost certainly increasing market concerns over Greece, and the repercussions if it defaults, that has caused lenders to tell the Bank of England that they expect the availability of secured credit to fall back in the next three months.
“Conditions in the wholesale money markets have tightened and this is what is causing lenders to be cautious about the volume of lending in Q3.
“However, to put this in perspective the impact on sterling 3 month Libor has not only been modest but also more muted than the increase in euro or dollar 3 month Libor. Sterling 3m Libor has only moved up by 0.08% from 0.65% to 0.73% in the last 3 months, whereas euro Libor has risen by 0.14% to 0.72% and dollar Libor by 0.24% to 0.53%.
“At John Charcol we have not seen any recent reduction in most lenders’ appetite to lend, although too many lenders operate a “computer says no” policy, and so we would expect any fall in lending volumes to be modest.
“As a result of many mainstream lenders’ tighter criteria we are transacting increasing amounts of business with private banks and other niche lenders, often at better rates than are available on the High Street, and we don’t expect their appetite to diminish.
“As the typical timeframe from application to completion is 10 – 12 weeks even if the market were to suffer a major shock next week it would have very little impact on mortgage completions until Q4.
“Most of the major lenders plan to continue lending at a similar rate to earlier in the year and a few of the smaller lenders have been increasing their lending.
“In addition we have seen a few new entrants to the market, with more expected over the next few months. Individually the new lenders won’t make much impact but added together they make a difference.
“A positive note in the Credit Conditions Report was that, despite lenders three months ago expecting a small deterioration in the default rate on mortgages there was actually a significant improvement in Q2.
“Lenders expectations have been badly wrong on this for the last 4 quarters.
“In each quarterly forecast for the last year lenders expected defaults to increase and in each quarter they fell. Consequently one can take their forecast of a small increase in defaults in Q3 with a pinch of salt.
“The survey reports that lenders claim demand for mortgages for house purchase fell in Q2 but rose for remortgaging.
“However, there is significant latent demand for mortgages for house purchase from people who lenders ignore when claiming demand has fallen.
“What lenders actually mean is that mortgage demand has fallen based on the terms they are prepared to lend on.
“If lenders have spare capacity and want to lend all they need to do is loosen their credit score requirements, particularly for loans in excess of 75% LTV, and offer more mortgages at 85% and 90%.
“Activity in the housing market fell a little in the run up to the election and then in the uncertainty prior to the budget.
“Now the budget is out of the way we expect that trend to be reversed, although activity will only pick up slowly.
“However, as far as demand for mortgages in both Q3 and Q4 is concerned it is lenders’ cautious criteria which will hold it back more than lack of interest from borrowers.”
