Lenders expect mortgage rates to fall further in the coming months, especially for landlords.
The Bank of England’s quarterly Credit Conditions Review shows lenders anticipate a “slight” reduction in prime residential rates and a “significant” reduction in buy-to-let rates.
However, the report adds: “In recent discussions, most major UK lenders did not expect rates to fall much further at lower loan-to-value ratios, but some noted there was some scope for reductions for higher LTV mortgage products.”
Demand increased “significantly” over the past three months, say lenders, and they expect a “slight” increase in demand over the coming three months.
Both the proportion of loans approved and the average credit quality of new loans are expected to increase “slightly” over the next three months.
Edinburgh Mortgage Advice director Mark Dyason says: “Mortgage rates have continued to fall throughout 2015 and, at lower loan-to-values, it’s hard to imagine them going much lower. There is, as this report suggests, more room for rate improvements at higher loan-to-values.
“The MMR has placed considerably more emphasis on affordability and it’s the background stress tests that are preventing some people, especially first time buyers, from getting a loan.
“Lenders are much more forensic in their underwriting and this has seen a rise in the number of rejections that would probably have passed pre-MMR. This has opened the doors to the ever-growing number of challenger banks and lenders that see the borrowers many lenders avoid as perfectly viable.”