Mortgage availability leapt in the last three months of 2013 according to the Bank of England and it looks like that improvement is going to be sustained this year. But that is not driven by Help to Buy so much as a fundamental reassessment of the property market and the economy.
The latest Credit Conditions Survey from the Bank (you can find it here) revealed a marked change in attitudes among lenders that gives an interesting insight in to their thinking about the property market and explains their greater willingness to lend.
On house prices, lenders have been pessimists for some time, with the majority expecting more price falls right up till spring last year (see the red line on the graph). Since then, however, there has been a growing consensus that prices will rise with a hefty positive balance* of lenders now expecting prices to move higher.
That means there’s less risk of a loss in the event that the borrower defaults – which makes it safer to lend.
Lenders are also more confident about the outlook for the economy (blue line on the graph). More jobs, greater job security and possibly even a wage rise or two makes a default less likely and so reduces risk. In fact, the banks reported a sharp fall in the number of defaults and losses on defaulting loans.
Appetite for risk
Finally, the banks appetite for risk has also changed (the green line on the graph). Although this has been more volatile than the other two measures, attitude to risk (i.e. the banks willingness to accept risk) steadily improved throughout 2013. That means that lenders are now more willing to lend to borrowers with smaller deposits and to moderate their credit scoring criteria.
Competition for borrowers
With better news on the economy and house prices, lenders are also attaching more importance to their competitive position. In the early part of the recession, banks were trying hard not to offer the most competitive loans on the market in order to avoid being swamped by applications. Now, the tide has turned and mortgage lenders are saying that improved mortgage availability is partly down to what the Bank calls ‘Market Share Objectives’. In other words, lenders are once again competing for clients – and that should be good news for borrowers.
* The results are calculated from a survey of lenders conducted by the Bank of England to give a balance of lender views on a range of questions. Replies are weighted to reflect the size of the various lenders (i.e bigger lenders have more influence on the outcome).