Stringent conditions lead to drop in consumer demand

Consumer demand for mortgages fell in Q4 2011, according to lenders.

The Bank of England’s latest Credit Conditions Survey, out last week, shows that demand for loans for house purchase declined in the three months to December, which lenders attribute to the inability of many prospective buyers to put down a large enough deposit, as well as increased economic uncertainty.

And while demand for buy-to-let lending was reported to have picked up in Q4 2011, lenders expect demand for both prime and buy-to-let lending to fall slightly this quarter.

Overall, lenders reported that the availability of secured credit to households was broadly unchanged in Q4 2011, failing to meet expectations of a slight increase.

Lenders said that tighter wholesale funding conditions and expectations for house prices exerted a negative impact on credit availability, but an increase in risk appetite had a positive effect.

Availability of secured credit is expected to increase slightly in Q1 2012, with many lenders discussing plans to increase their focus on high LTV lending and more innovative products, such as high LTV mortgages that take collateral from house builders to mitigate risk.

In addition, lenders reported that the default rate on secured loans fell in Q4 2011 and is expected to drop further in the coming quarter.