Lenders expect a significant further increase in mortgage availability in the next three months as the Government’s flagship Help to Buy scheme injects further competition to attract low-deposit borrowers.
The Bank of England’s latest Credit Conditions survey of banks and building societies found that in the last three months of 2013 household demand for mortgage lending rose at its fastest pace since the quarterly research began in 2007.
Meanwhile, lenders also expect a pick-up in business lending in the first quarter of 2014, with significant increases in demand expected from small businesses as well as large corporations.
In the three months to December, lenders reported an increased willingness to lend to people with a mortgage deposit of less than 10%.
The expansion of mortgage availability generally was put down to lenders’ increased appetites for risk, rising house prices and banks and building societies looking to meet their market share objectives.
As lenders’ risk appetites returned, they relaxed their credit scoring criteria and the proportion of loans being approved rose significantly, the Bank’s report said.
A new phase of Help to Buy, which offers state-backed mortgages to borrowers with deposits as low as 5%, was launched in October and lenders representing around two-thirds of the market have confirmed they plan to take part.
There are also signs that the scheme is stimulating competition among lenders which are not taking part in the scheme, with Yorkshire Building Society, which has not joined Help to Buy, recently launching a flood of 5% deposit mortgages on to the market.
The Bank’s report said lenders expect mortgage availability to “significantly increase” in the first quarter of 2014, including deals for borrowers with deposits below 10%.
It continued: “Many lenders attributed the increased availability at the highest LTV (loan-to-value) ratios to participation in the Government’s Help to Buy Scheme, while some others attributed it to increased competition associated with the scheme.
“Consistent with a move into higher LTV lending, lenders expected the average credit quality of new lending to fall over the next quarter.”
Funding for Lending, a key Government scheme which helped to increase mortgage availability last year, has been re-focused for 2014 towards helping growing firms obtain the finance they need to expand, with such companies seen as crucial to the sustainability of economic recovery.
The Bank’s report found that lenders reported demand for loans from small businesses remained flat in the fourth quarter of 2013 despite an increase in the availability of credit for this sector.
Demand for loans was found to have increased significantly among medium-sized firms.
The overall availability of credit to the corporate sector rose significantly in the last three months of 2013, according to lenders, and a further increase is expected for the coming months.
Lenders said that improvements in the economy and market share objectives will contribute significantly to the increased availability of business loans in the next quarter.
They said that the proportion of loan applications from small businesses