Banks wary over mort­gages as de­mand rises

Lenders re­veal cau­tion over home loans, as credit cards drive rise in re­quests for un­se­cured debt

The Daily Telegraph - Business - - Business - By He­len Chan­dler-Wilde and Anna Isaac

BANKS be­came more cau­tious about mort­gage lend­ing in the third quar­ter of this year and be­lieve they will tol­er­ate even less risk in the next three months.

The sur­vey of credit con­di­tions pro­duced by the Bank of Eng­land found de­mand from bor­row­ers has not fallen as lenders have be­come less will­ing to lend.

In fact, de­mand for re­mort­gag­ing in­creased “sig­nif­i­cantly”, with lenders ex­pect­ing this trend to con­tinue into the next quar­ter.

This could be caused by home­own­ers anticipating fur­ther rate in­creases from the Bank and want­ing to lock in lower rates on fixed mort­gages be­fore then.

Trends in un­se­cured loans have been broadly sim­i­lar. Banks are re­duc­ing the avail­abil­ity of credit at the same time as cus­tomers are de­mand­ing more.

The Bank said the large in­crease in de­mand for un­se­cured loans was solely caused by credit cards. This wary be­hav­iour could be ex­plained by the banks’ be­lief that the eco­nomic out­look for the UK will get worse in the next three months.

Banks were less cau­tious about lend­ing to busi­nesses, as cor­po­rate credit sup­ply stayed flat over­all and in­creased for small busi­nesses. How­ever, banks ex­pect to lend slightly less to firms in the fourth quar­ter of this year.

De­spite the risk-averse be­hav­iour, de­fault rates for se­cured and un­se­cured lend­ing to house­holds fell be­tween July and Septem­ber, and are ex­pected to re­main the same for the last quar­ter of the year.

How­ever, the rate of de­faults by busi­nesses of all sizes in­creased in the third quar­ter, al­though the amount lost in de­faults was un­changed and is not ex­pected to change in the fourth quar­ter.

The Bank’s lend­ing data came yes­ter­day as the Trea­sury se­lect com­mit­tee pub­lished the gov­ern­ment re­sponse to its re­port on house­hold fi­nances. MPs had high­lighted the is­sue of over-in­debted house­holds, debt-col­lec­tion prac­tices of some lenders and lo­cal gov­ern­ment and pen­sions tax relief.

In re­sponse, the Gov­ern­ment said it mon­i­tors the state of house­holds “closely” and said it had taken steps to limit the “un­sus­tain­able build-up of mort­gage debt”.

This in­cluded the bor­row­ing lim­its im­posed on banks in 2014 by City watch­dog the Fi­nan­cial Con­duct Au­thor­ity, in­tended to safe­guard against of­fer­ing mort­gages to high­lyin­debted bor­row­ers.

Nicky Mor­gan MP, chair­man of the Trea­sury se­lect com­mit­tee, said: “Whilst fi­nan­cial ser­vice reg­u­la­tors and guid­ance bod­ies have im­por­tant roles to play, the Gov­ern­ment should not pass the buck to them.”

There was no “in­creased sense of the ur­gency re­quired” from the Trea­sury on the is­sues raised by the com­mit­tee, she added.

Mrs Mor­gan also noted re­ports sug­gest­ing Chan­cel­lor was con­sid­er­ing re­form­ing pen­sion tax relief.

These have raised the pos­si­bil­ity that the an­nual tax-free pen­sion con­tri­bu­tions could be cut from £40,000 to £30,000.

MPs would keep a “close watch” for an­nounce­ments on the is­sue in the Bud­get, Mrs Mor­gan said.

Nicky Mor­gan, the chair­man of the Trea­sury se­lect com­mit­tee, which high­lighted overindebted house­holds

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