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A survey of banks and building societies by the Bank of England has revealed that households may find it more challenging to take on new borrowing in the coming months as Brexit uncertainty continues to depress the market. Lenders surveyed by the central bank believe that a slowdown in house prices will be the biggest impediment to how many mortgages they offer and will exert the most significant drag mortgage supply since 2012. Lenders expect many mortgages in the second quarter to be roughly equal to the first three months of the year. The availability of mortgages to households in the first quarter had slightly increased.
The Bank's Credit Conditions Survey found that in the first three months of 2019, the availability of non-mortgage credit to households was reported to have decreased, with further deterioration expected in the second quarter. The proportion of applications approved reported to have reduced slightly as lenders said they had tightened their credit scoring criteria for loan applications slightly. In contrast to lending to households, the availability of credit the corporate sector - including small, medium and large businesses - remained unchanged in the first quarter and was expected to remain unchanged in the second quarter.
Lenders reported that demand for secured lending for house purchase, dominated by London which has been hardest hit by the chaos, remained unchanged in the first quarter, and was expected to decline to their lowest level since late 2010 in the second quarter. However, demand for secured lending for remortgaging saw a significant increase in the first quarter and is predicted to increase in the second quarter. However, demand for unsecured credit was unchanged in Q1, while lenders expected a decrease in the demand for unsecured lending in Q2. Corporate houses of all sizes demanded less mortgage in the first quarter, while lenders expected demand for corporate lending from large companies to decrease in the second quarter.
While spreads on secured lending to households were expected to widen in Q2, they were reported to have remained unchanged in the first quarter of 2019. The overall unsecured lending spreads, as reported by lenders, did not change in the first quarter and was not expected to move in the second quarter of FY 2019 as well. The length of interest-free periods for new purchases on new credit card lending and balance transfers are expected to fall significantly again in the next three months and a similar decline was reported in the first quarter as well, indicating an increase in credit risk. While spreads on corporate lending declined for small companies, the spread is expected to remain the same in the third quarter.
In the first quarter, it was reported in the survey that default rates on secured loans to households and losses given default on secured loans did not move. However, losses were expected to increase in the second quarter. The credit card defaults rose to the highest level in almost two years, leading to a similar increase in default rates for total unsecured lending in Q1; it is expected to decline in the second quarter.
Currently, the country's overall unsecured consumer debt pile is worth more than £200 billion and is still increasing at a yearly rate of approximately 6.5 per cent. The central bank is not expected to raise interest rates in the coming months, despite the lowest unemployment in decades which has led an increase in the wages.
