UK banks to curb mortgage supply as loan defaults rise

BLOOMBERG 

British banks expect to put the squeeze on the mortgage market in the coming months after signs emerged of business and household loan defaults picking up.
The Bank of England’s (BOE) quarterly credit conditions survey showed that the availability of home loans will be curtailed in the second quarter (Q2). Lenders said that default rates on mortgages, unsecured credit to households and loans to small and medium-sized businesses all rose in the first quarter and are expected to increase further.
The figures underline the toll been taken by double-digit inflation and an unprecedented series of BOE interest-rate increases since the end of 2021, which have saddled millions of homeowners with additional mortgage payments.
Bloomberg Economics expects the UK to avoid a recession this year but warns that tighter credit conditions are a key risk that may worry some BOE policymakers.
While banks plan to rein in home loans, they expect demand for mortgages to pick up sharply in the coming months as borrowing costs come down from the highs reached during last autumn’s market turmoil. Demand for home loans in the second quarter is expected to jump to its highest level in almost two years.
“The housing market is on much firmer ground the further we move from the mini-Budget,” said Simon Gammon, managing partner at Knight Frank Finance. “Mortgage rates have eased to more acceptable levels and have been stable for several weeks now. That’s likely to boost activity levels through spring to levels that are far more robust than looked likely only a few weeks ago.”
There was little evidence yet that the crises at Silicon Valley Bank and Credit Suisse are affecting banks’ willingness to lend. BOE rate-setters have warned that the UK economy will be dampened if lenders respond by curbing credit.
While banks plan to curtail mortgage availability, they expect to increase unsecured credit to households, such as credit cards, and keep lending to businesses unchanged.

BOE Financial Stability Issues Will Not Affect Rates, says Bailey
The Bank of England (BOE) will not be diverted from its fight against inflation by risks to financial stability from higher interest rates, Governor Andrew Bailey said at an event in Washington.
“What we shouldn’t be doing is saying, we’ve got such a problem with financial stability that we have to aim off a decision on monetary policy because of conditions and financial stability,” Bailey said at the International Monetary Fund’s spring meeting.
Silicon Valley Bank collapsed after the speed of rate rises caused losses that spooked depositors into withdrawing their cash in one of the fastest bank runs in history. Contagion swept across the regional US banks and contributed to the collapse of Credit Suisse, which was rescued by UBS AG.
Bailey stressed that monetary policy makers always take financial conditions into account but do not make decisions based on financial stability concerns. Central banks have a separate set of tools to handle bank crises, he said.