Mortgage rates set to drop but lenders expect lower levels of demand

Mortgage lenders are braced for a slower market over the rest of the year.

The latest Bank of England Credit Conditions Survey found lenders reported that demand for secured lending for house purchase and remortgaging decreased in the third quarter and was expected to decrease further in the final three months of the year.

It comes despite mortgage lenders saying the supply of products will improve and that pricing will drop.

Commenting on the survey, Hina Bhudia, partner at Knight Frank Finance, said: "Demand for mortgages is set to decline over the coming three months. Transaction activity in the property market is slowing and many borrowers are still rolling off sub-2% deals and are eager to put off refinancing where they are able to do so.

"Borrowers that do act are generally opting for trackers. For many people, the risk that monthly payments increase in the event of another interest rate hike is worth taking if it gives them the opportunity to see cuts in their monthly outgoings next year. Typical two year trackers at 75% LTV are still above 5.50%, while retail bank tracker products sit a little over 1% above the base rate.

"The banks remain very eager to bring in more business. Most will be behind on their lending targets due to the subdued conditions in the property market. Private lenders have been trimming margins on tracker products to gain market share, but the margins at the high street banks are already pretty thin. We don't foresee large moves in mortgage rates through to the end of the year. That's reinforced by the fact that lenders believe spreads over the bank rate or appropriate swap rate will widen in the fourth quarter."