Toughest time to get a mortgage in 15 years as lenders brace for a spate of defaults
BANKS are bracing for a surge in mortgage defaults as the availability of home loans fell to its lowest level outside of the pandemic in 15 years.
Lenders are becoming more anxious about giving out loans as the downturn intensifies, a survey by the Bank of England shows, signalling troubles are far from over for Britain’s housing market.
It comes as house prices fell for the first time in over a year from October to November, marking a 0.3pc drop, data from the Office for National Statistics (ONS) showed.
The survey, conducted between Nov 21 and Dec 9, shows a sharp rise in lenders expecting mortgage defaults to increase in the first quarter of this year, with a net score of 44.3. This is despite banks saying defaults fell slightly in the final three months of last year.
Meanwhile, when asked about the availability of “secured credit” in the past three months – mainly mortgages – a net score of minus 33.6 lenders reported a tightening. This reflects banks pulling vast amounts of mortgage products and tightening their lending criteria in the aftermath of Liz Truss’s disastrous mini-budget last year.
Apart from the height of the Covid crisis when the housing market was in effect closed down, it is the largest figure since 2008 when it was minus 39.3.
It comes as new analysis by Hamptons estate agents showed it is 26pc cheaper to rent than buy on average.
A buyer with a 10pc deposit and a 25-year term would have monthly mortgage repayments of £1,603 on average, while renters typically would pay £1,191 a month.
The gap between renting and buying is at its widest since records began in 2013. The difference is now £412. A year ago it was £150 cheaper to buy than rent.
The average buyer now needs a 31pc deposit to make mortgage repayments as affordable as renting – another nine-year high.
The area that is most expensive to buy relative to renting was Kensington and Chelsea in west London, where rent was £5,614 a month – or 55pc – cheaper than buying. Monthly mortgage repayments would be £10,215, compared with £4,601 for rent.
In comparative terms, London was the best region to rent instead of buy. The city also experienced the biggest change in the past year: it had previously been £277 cheaper to buy.
Monthly rents are now at £2,131 on average, compared with £2,700 for mortgage repayments.
A significant share of banks said they expected mortgage availability to shrink further at the start of this year.
The most commonly cited factor was the changing economic outlook. Many lenders also reported a declining risk appetite and worsening expectations for house prices, especially in the coming three months. Borrowers with smaller deposits of less than 25pc were most likely to be impacted, although lenders reported declining availability even for people with larger deposits.
Demand for mortgages also dissipated in the final three months of last year, dropping to the lowest outside of the pandemic since records began in 2007.