It’s not just Francis Maude triggering a spate of panic buying – if you’ve been hanging round the Bank of England's website you might feel the need to call your friendly mortgage adviser PDQ too. Once you’ve filled up the car of course.
The Bank’s latest Credit Conditions Survey has just been released, and it doesn’t make cheery reading - at least, not if you’re wanting a mortgage in the not-too-distant future.
The Survey, giving lenders' views on the previous and next 3-month period looks at three things of interest to us: supply of credit; demand for credit; and credit terms granted. Or to put it another way, what they’ll give us, what we want, and what it’s going to cost. So here – if the survey is accurate – is what to expect over the coming quarter:
Overall mortgage lenders said that in the last 3 months, availabilty has been fairly stable, though skewed towards lower loan-to-values (LTVs). Those seeking higher LTVs have had fewer options. They also said the credit scoring at tightened and fewer loans were approved. They’ve been cherry-picking, in short. So even if they say the amount available to lend has been unchanged, the reality for the consumer is that achievable mortgages probably declined compared to, say, late 2011.
Unfortuntely, it looks like this is going to worsen. The forecast for the next 3 months is that availabilty is going to fall – the first time they’ve said that in 2 years apparently. The reasons cited are tighter wholesale markets (they’re scared of lending to each other), changing risk appetite (they’re scared of lending to you) and concerns about house prices falling further (they’re scared of lending mortgages).
If experience is any guide then lower availability will manifest itself as yet tighter lending policy. Credit scoring and affordability assessments are helpfully opaque in this respect, since lenders can tighten up without having to tell anyone; it’s just that the computer says No more than it did. And with less to lend there’ll probably more cherry-picking as well, so expect it to be harder for those with (relatively) smaller deposits, lower income or higher debt.
Lenders said demand for mortgages had increased over the last 3 months, helped along by the first-time-buyer stamp duty waiver deadline. But as we’ve already seen, the excess demand has left many lenders unable to cope, so mortgage rates have increased significantly as they try to slow business down.
Unfortunately again, lenders now expect demand for mortgages to increase futher over the next quarter, making the gap between what we want and what they’ll give us even wider.
By now you don’t need me to tell you what more demand and less availability is going to do to . . .
Or what they call “spreads” between benchmark rates and actual mortgage rates charged to you, the borrower. Generally the benchmark will be the Bank of England Base Rate, or swap rates for fixed rate mortgages. It’s not actually profit margin because the true cost of funding may be quite different, but it gives us a good steer as to profitability and overall price trends.
You will be startled to hear that lenders reported that spreads “widened markedly over the previous quarter” though the survey doesn’t say whether they were rubbing their hands together and smirking. Even less astonishingly, lenders expect “further significant widening” over the next few months, citing “the pass-through of elevated funding costs”.
Cynics will give that last bit a big raspberry, but it’s doubly concerning if true. If lenders anticipate higher rates PURELY because of higher funding costs, that means they’re not really factoring in the impact of undersupply and overdemand.
Which gives us the cheery message that for the next few months we’re looking at a double-whammy: mortgages are intrinsically more expensive, so the price will go up, AND demand will outstrip supply, so they’ll go up some more. Super.
So if you’re planning on buying a house or switching to a new mortgage deal in the next 3-6 months, you might want to get a move on. And maybe stick a couple more in the garage while you’re at it.