UK lenders expect biggest fall in mortgage demand since Q2 2020

LONDON (Reuters) -British lenders expect the biggest fall in demand for mortgages since mid-2020 during the three months to the end of August, a further sign that the housing market is cooling in the face of surging inflation.

The Bank of England’s quarterly Credit Conditions Survey showed the net balance of expectations among lenders for mortgage demand sank to -41.9. Expectations were last lower in the second quarter of 2021 and the last time there was weaker actual demand was in the second quarter of 2020.

Thursday’s BoE survey – which was conducted between May 30 and June 17 – chimes with sentiment from members of the Royal Institution of Chartered Surveyors, who said house prices rose in June at the slowest pace since March 2021.

Since February 2020, British house prices have surged by more than 20%, bolstered by greater working from home, low mortgage rates and increased disposable income among richer households – trends that are all now in reverse.

The BoE survey showed mortgage lenders expected to increase by the most since late 2020 the extra interest rate margin they charge over and above their own finance costs.

The lenders also expected more mortgage defaults – though their past forecasts for this have typically not materialised.

For unsecured lending, banks expected demand to be steady while they intend to rein in supply slightly as they approve fewer loans and credit cards due to borrowers’ weaker financial situation.

Business lending was expected to remain broadly unchanged.

(Reporting by David MillikenEditing by William Schomberg)