Business

Mortgage supply squeezed in the summer, Bank of England says

Mortgage application form
Image caption Both supply and demand for mortgages fell in the summer, the Bank says

The number of mortgages made available in the UK fell in the third quarter of the year - the first drop for more than two years.

Lenders told the Bank of England that supply and demand for home loans fell in the three months to early September.

A bottleneck created by the introduction of new affordability rules and warnings from the Bank's policymakers prompted the squeeze.

But lenders believe that the appetite for mortgages will pick up again.

The Bank's Credit Conditions Survey suggested that the demand for, and availability of, mortgages will increase for the rest of the year.

Lower mortgage rates

Earlier this year, regulators told lenders that they would have to keep to strict rules ensuring mortgages were only offered to people with a solid and realistic repayment plan.

As a result, the survey reveals that the proportion of mortgage applications that were approved dipped in the third quarter of the year. Lenders expect this to bounce back when the system is further embedded as the year goes on.

Banks and building societies are also competing for new customers by reducing their mortgage rates. Lenders told the Bank that they expected their profit margins for home loans to narrow in the coming months, signalling that this competition could get more intense.

Andrew Montlake, director at mortgage broker Coreco, said: "What is encouraging is that we are now seeing more availability of mortgages as lenders look to hit the lending targets they have fallen behind on by the end of the year.

"This has led to a mortgage rate war breaking out as competitive pressures help to cut mortgage rates in every part of the mortgage market."

The number of people falling behind on mortgage repayments had also fallen, lenders told the Bank.

The availability of credit to businesses was unchanged in the third quarter of the year compared with the previous quarter, the Bank's survey said. Within this, lending to small business fell slightly.

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