Banks reined in the availability of mortgages to households in the second quarter as losses and defaults started to pick up following the surge in borrowing costs.
(Bloomberg) — Banks reined in the availability of mortgages to households in the second quarter as losses and defaults started to pick up following the surge in borrowing costs.
The Bank of England’s credit conditions survey revealed that lenders expect to restrict the availability of home loans and unsecured lending, such as credit cards, again in the coming months.
The findings come against a darkening backdrop for the housing market after mortgage rates hit their highest level in 15 years. Stickier inflation is expected to force the BOE into more interest rate rises, putting the squeeze on borrowers.
What Bloomberg Economics Says …
“The data show monetary policy tightening is having a material impact on credit provision. The BOE, however, will need to see that show up in the activity, pay and inflation data to have confidence it has done enough. We see rates peaking at 5.75% this year, up from 5% currently. A 50-basis point hike in August is not our base case, but is possible if the June CPI data surprises to the upside.”
—Jamie Rush, Bloomberg Economics. Click for the REACT.
The survey suggested a sharp decrease in mortgage availability in recent months as swathes of mortgage deals were pulled from the market in the wake of shock inflation figures.
The BOE said demand for lending for home purchase and re-mortgaging picked up in the second quarter. However, it is expected to decrease again in the third quarter after the recent volatility in the market.
Defaults are expected to increase on mortgages, unsecured lending and loans to small businesses.
Read more:
- UK Property Buyers Pull Back From Market After Jump in Rates
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