This follows from the first three months of the year when lenders reported that the availability of secured credit to households dropped, according to the BoE’s quarterly Credit Conditions Survey.
Lenders said they have become less willing to lend to first-time buyers or those with housing equity less than 10% of the value of their home dropping from a positive 0.9 in Q2 to a negative 0.9 in the next three months.
Demand for secured lending for house purchase increased in Q2 to a positive 30.4 but shows a negative reading of 41.9 for the next three months.
Meanwhile, demand for remortgages is expected to increase from a negative reading of 6.3 in Q2 to a positive balance of 4.4 over the next three months.
At the same time, lenders said that the availability of secured credit overall had dropped to a negative balance of 22.0 but that is set to improve slightly in Q3 with a negative balance of 5.1.
When asked how credit scoring criteria has changed over the last three months, lenders reported a decline with a positive reading of 4.9. For the next three months, this is set to decline slightly to a positive balance of 3.9.
Elsew., the net percentage balance for changes in default rates on secured loans to households was a negative 7.6 in Q2, this is expected to rise in Q3 to a positive reading of 37.0.
The net percentage balance for changes in losses given default on secured loans in Q2 was a negative balance of 25.1, but was expected to increase to a positive balance of 0.6 in the next three months.
Commenting on the latest data, Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “It got tougher to secure a mortgage during these three months, as banks started factoring higher prices into their mortgage calculations.”
“They said they expected to make it even harder to borrow over the summer. It’s yet another pressure on the housing market, which is showing signs that it’s starting to cool.”
Coreco managing director Andrew Montlake explains: “Demand for mortgages was as strong as ever during the second quarter of the year and supply was equally robust.”
He suggests that the issue now is that mortgages “are rising faster than the mercury”.
“If lenders do expect supply [of credit] to drop slightly in the next quarter, it’s partly because they have been inundated in recent months and need to slow things down to maintain service levels, and partly because they are concerned about the economic outlook and are tightening their affordability criteria.”
“However, this time round is different to the Global Financial Crisis as lenders today are financially strong so we won’t see another Credit Crunch. The real crunch will be on borrowers’ morale and finances when they come to remortgage.”
“During the first half of the year, pricing in the mortgage market has transformed beyond recognition and sooner or later this, and the ongoing cost of living crisis, will start hitting demand. However, the latest GDP data and the robust jobs market suggest we may, just may, avoid a recession,” he adds.
Also commenting, Dashly founder Ross Boyd says: “A lot of the demand we saw in the second quarter and are still seeing is being driven by fear. People want to buy or remortgage before rates rise even higher. Lenders are predicting demand for mortgages will decrease in the third quarter and that may well be the case if inflation and rates continue to rise and sentiment deteriorates.”
“When they come to remortgage, it will be less a case of rate shock for many borrowers but rate trauma. The pending remortgage crunch will significantly add to the cost of living crisis. We are in for a turbulent twelve months.”
The survey was conducted between 30 May and 17 June.