Mortgage loans strengthened despite bank of england’s interest rate warning

A mortgage price war that has lowered monthly payments over the past year is expected to continue until at least next month, despite warnings that lenders' profit margins could be squeezed by an increase in the Bank of England's prime rate.

Industry figures showed that mortgage lenders offered lower interest rates in the third quarter of the year than in the previous quarter and were willing to accept a greater number of applications from buyers with small deposits.

High-street and online lenders said they would increase the supply of mortgages in the three months to the end of November, after supply increased in the previous quarter.

The Bank of England's Lending Conditions Survey found that demand for mortgages to buy a home fell in the third quarter and is likely to fall again in the fourth quarter, but debt restructuring should more than offset the drop in new mortgages.

A balance of 18.3% of mortgage lenders expected further easing of lending standards in the fourth quarter, slightly higher than the balance of 15.3% who reported an easing of lending standards in the third quarter. The survey results are based on a weighted balance of lender responses, with those expecting a very likely easing of conditions scoring higher than those who think a moderate easing is likely.

Lenders saw an improving outlook for the economy and home prices, as well as their increased appetite for risk, as reasons to ease lending standards in the coming months.

The mortgage industry has been embroiled in a price war since last summer, when the government introduced stamp duty on purchases under 500.000 pounds lowered, which for a buyer meant a savings of up to 15.000 pounds meant.

The subsidy was largely withdrawn in June and the previous surge of buyers began to dry up. The market rebounded in August, albeit with more moderate growth than a year ago.

Andrew Wishart, real estate economist at consulting firm Capital Economics, said, "Given the end of the stamp duty vacation in September, demand for mortgages has unsurprisingly declined. This reflects the slowdown in apartment moves over the summer. But we believe that easing credit conditions and limited inventory will continue to support home prices."

He added that recent concerns about an imminent increase in the Bank of England's key interest rate from 0.1% to 0.25%, possibly at the Monetary Policy Committee meeting in December, have been absorbed by lenders and the current level of activity in the mortgage market and the low level of mortgage rate transactions.