Demand for mortgages is rising 'significantly' as rates fall to record lows, says Bank of England

  • Mortgage demand grew in the three months to June, lenders said
  • Comes as rates continue to fall to record lows
  • Personal loans now offering lowest rates on record, BofE says 

Lenders have reported higher demand for mortgages as rates continue to fall to record lows, Bank of England figures reveal.

Demand has 'increased significantly' in the three months to May according to lenders, having fallen sharply in the previous three quarters, according to its latest credit conditions survey.

In fact, lenders say demand is at its strongest level since the end of 2013.

A number of housebuilders have recently said the housing industry is continuing to recover, buoyed by the Government's Help to Buy scheme and increased mortgage availability.

Mortgage surge: Demand for lending has grown in the last three months - but banks and building societies believe lending will be broadly similar this year compared to last year

Mortgage surge: Demand for lending has grown in the last three months - but banks and building societies believe lending will be broadly similar this year compared to last year

Banks added there was a significant increase in the demand for lending for prime properties and buy-to-let mortgages during the three months to June.

There was also expected to be a slight increase in the number of mortgages to borrowers with deposits of less than 10 per cent of the value of the property they wanted to buy over the next three months.

The Bank of England figures show 193,400 mortgages for house purchase were issued between February and May, compared to 182,700 in the previous three months.  

Howard Archer, chief economist at IHS Global Insight, said: 'The increase in demand for mortgages is reinforced by latest survey evidence – notably from the RICS and Rightmove - of rising buyer interest.

'It increasingly looks like housing market is on the up after being in the doldrums during most of 2014 and the start of 2015.

'We expect housing market activity to pick up further during the second half of 2015, underpinning a modest firming in house prices.'

Average rates offered by banks and building societies have plunged as low as 1.83 per cent for a two-year fixed rate, as lenders compete to offer the best deal. This compares with the 3.98 per cent rate on offer in 2009.

Many lenders have issued record deals. The price war has seen Chelsea Building Society cut its leading deal to 1.08 per cent, beaten days later by Yorkshire Building Society at 1.07 per cent. 

This was quickly undercut by the Post Office, which currently holds the title for lowest ever two-year deal at 1.05 per cent.

But despite the growing demand between April and June, banks and building societies expect gross mortgage lending this year to be broadly similar to that of 2014.

Mortgage approvals also remain far lower than in the years prior to the financial crisis.

Elsewhere, lenders said secured credit to households increased slightly during the period, and is expected to rise at a similar pace over the next three months.

It comes as quoted rates on personal loans continues to fall. Those looking to borrow £10,000 will now find the lowest rates on offer since 1995, when the data started.

In June 2011, the average rate on a personal loan of £10,000 was 9.3 per cent. Today, that has fallen to 4.3 per cent.  

Demand for lending from small firms rose sharply, hitting its highest level in a year, with demand from large companies also increasing. Applications for loans from medium-sized firms remained unchanged.

The Bank has often said the lack of credit for companies was a drag on Britain's economic recovery.

Demand for credit card lending was little changed in the period, having fallen at the start of the year, but banks expected this to recover over the next three months.

Mr Archer added: 'The Bank of England's credit conditions survey for the second quarter points to broadly healthy economic activity, with increased demand for credit from small businesses, higher demand for mortgages and relatively elevated demand for unsecured consumer credit.'

But he added that consumers and businesses should factor in to their borrowing that interest rates are likely to start rising from early on in 2016.

It would mean ultra-low loan and mortgage rates could soon end – with fears that potential rate rises in the US may lead to a rise in the cost of borrowing here.

It is widely expected that the Bank of England will raise interest rates later this year, bringing to an end 76 months of stability during which the base rate has been frozen at 0.5 per cent.


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