Mortgage price war expected as UK lenders fight for market share

Published : 7th October 2014


The mortgage price war could intensify over the final three months of the year as lenders attempt to regain market share after significantly reducing the availability of home loans over the summer. 

According to the Bank of England’s latest Credit Conditions report, lenders expect to increase the availability of mortgages in the fourth quarter after a sharp contraction in activity in the three months to early September. 

The quarterly survey of banks and buildings societies found that a changing appetite for risk and lenders’ concerns about house prices had driven a significant reduction in their willingness to offer secured loans. 

The operational issues associated with the introduction of the mortgage market review’s new affordability rules in April, and the prospect of restrictions on loan to income ratios also had an impact on mortgage availability. 

However, the change appears to have been temporary, and brokers and economists said consumers looked set to gain as lenders competed for market share. Recent weeks have already seen a flurry of price cuts and launches by lenders, including offers of iPads and council tax payments. 

The Bank’s report bears out other surveys of the housing market that have reported a dip in interest from would-be homebuyers over the summer months. The latest house price index from Nationwide showed the first fall in 17 months, suggesting that the slowdown in activity had hit prices. 

The Bank’s survey found that lending was restricted across all mortgages, including for borrowers with large deposits, and that despite the ongoing offer of a guarantee on mortgages of up to 95% loan to value through the government’s Help to Buy scheme, lenders reported being less willing to lend at more than 90% LTV. 

Credit scoring tightened over the three months, and there was a fall in the number of households approved for loans. 

At the same time, lenders said that demand from borrowers had also fallen significantly, breaking a trend of increasing demand seen since the start of 2012. Within that, however, demand for buy-to-let loans increased. This is also expected to increase again in the last three months of the year. 

Andrew Montlake, the director of mortgage broker Coreco, said that it was no surprise to learn that demand and supply had fallen in the aftermath of the introduction of the MMR. 

“This was further exacerbated by the fact that house prices were pushed to their limits,” he said. 

“What is encouraging is that we are now seeing more availability of mortgages as lenders look to hit targets they have fallen behind on by the end of the year. This has led to a mortgage rate war breaking out as competitive pressures help to cut mortgage rates in every part of the mortgage market.” 

James Knightley of ING Financial Markets said lenders’ predictions of a big rebound in availability “suggests that there should be some good mortgage deals becoming available in coming weeks”. 

The Credit Condition report found that lenders had increased the availability of unsecured credit, through products like credit cards and personal loans, and expected to do so further before the end of the year. 

The overall availability of credit to the corporate sector was unchanged and expected to remain so until the end of the year, despite lenders feeling more confident about the economic outlook.

Smaller businesses did see their access to credit fall slightly over the summer, while medium-sized businesses were more likely to be accepted for loans. 

Knightly said improved unsecured lending and positive news on corporate lending “should be supportive for the growth story, but the Bank of England will want to see actual confirmation of lending growth picking up after Q3 weakness before pulling the trigger on rates”.