UK mortgage demand cools and expected to drop further

·Business reporter
Property: UK mortgages
Lenders expect UK mortgage demand to cool over the next three months amid expectations of interest rate rises. Photo: Ben Birchall/PA via Getty

UK mortgage demand fell in the final quarter of last year, and is set to drop further as the housing market slows.

According to a recent survey from the Bank of England (BoE), demand decreased from a measure of -35.3 in the third quarter to -34.8 in Q4.

Lenders expect this will cool over the next three months to -28.7 amid expectations of interest rate rises, despite credit conditions still remaining loose for borrowers.

The data, which was conducted between 22 November and 10 December, showed demand for remortgages rose in the last quarter of 2021, to a score of 70.4, up from 34.5 in Q3.

The scores for lender responses are calculated by market share, with a larger weighting given to those with a bigger share. A positive reading indicates an improvement to the respective scenario, while a negative reading suggests a decline.

Read more: UK economy climbs above pre-COVID levels in November

The decline in mortgage lending was also affected by the end of the government’s stamp duty holiday.

September marked the final month buyers could benefit from the stamp duty holiday, a tax break designed to prop up the housing market, and help consumers as the economy contracted during the COVID-19 lockdowns.

The holiday was extended from 31 March 2021 to the end of June and once more, tapering from June to the end of September, as people rushed to market.

Housebuyers could have cashed in on savings of up to £15,000 ($20,230) if they bought at the right time.

The break caused a frenzy in the market, with many using it as an excuse to make long-awaited moves, buy for the first time, or purchase second homes.

“The end of the stamp duty holiday has taken some of the heat out of the housing market. The focus appears to be shifting to remortgages, which saw a significant jump in activity in Q4 2021 as borrowers with home loans set to mature opting to lock into a fixed-rate deal ahead of the highly touted rise in interest rates December,” Myron Jobson, personal finance campaigner at Interactive Investor, said.

Watch: How much money do I need to buy a house?

However, mortgages are expected to become more widely available, as banks look to an easing of conditions for borrowers with smaller deposits.

The number of lenders predicting credit conditions will loosen over the next quarter exceeded those saying it would tighten by 15%, the BoE survey showed.

But Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said people "could grow old waiting for saving rates to rise" as big high street banks "don't need our money".

“Demand for mortgages has dropped and is set to keep falling, so banks don’t need as much cash to fund this lending. They’re already sitting on a pile of cheap money from the Government, and they have plenty to keep them going for now,” she said.

Read more: Pound highest level since October as calls grow for Boris Johnson's resignation

Meanwhile, Ross Boyd, chief executive of mortgage switching platform, Dashly, said: “With inflation soaring and the cost of living really starting to bite, lenders are likely to be more cautious and conservative in their lending in the months ahead as they brace for a period of economic turbulence. But demand for property remains strong and is being underpinned by a robust jobs market.

“Remortgages are likely to see the most activity levels as people set out to lock into the lowest rates possible ahead of any rate rises. January already has seen an exceptional amount of remortgage enquiry levels across the broker community."

Watch: Why are house prices rising?

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting