Mortgage demand unlikely to rise this year amid low interest rate cut expectations

UK lenders don't expect demand for new mortgages to rise this year, according to a survey by the Bank of England (BoE), which comes as expectations have lowered that the central bank will cut interest rates again in 2025.

In the BoE's latest quarterly credit conditions survey, published Thursday, bank and building society lenders reported that demand for secured lending for house purchases was unchanged in the third quarter. Lenders also expect demand for this type of borrowing to be unchanged in the fourth quarter.

However, lenders did report an uptick in demand for secured lending for remortgaging in the third quarter. They expect demand for this type of borrowing to increase in the final three months of the year.

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The findings come as the BoE is forecast to keep interest rates on hold for the rest of the year, as inflation remains sticky, coming in at 3.8% in August. The BoE opted to keep its bank rate at 4% at its September meeting, with its next decision due on the 6 November.

The central bank has kept interest rates elevated in an effort to get inflation under control, though it is also trying to balance that with avoiding too much of a slowdown in the economy.

Data released on Thursday by the Office for National Statistics (ONS) showed that the UK economy grew by just 0.1% in August, though this was in line with expectations and marked a slight improvement over July, when the country's gross domestic product (GDP) contracted by 0.1%.

Ruth Gregory, deputy chief UK economist at Capital Economics, said that "with inflation still high and rising, we doubt the soft GDP news will tempt the Bank of England to cut interest rates again this year".

The BoE's interest rate influences those set by lenders, which can mean stronger returns on savings accounts, but also higher rates of interest on borrowing products, such as mortgages.

Mortgage rates have started to edge back up, according to data from Moneyfacts this week, with average deals rising month-on-month for the first time since February.

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This comes on top of existing concerns about affordability weighing on demand in the housing market.

The latest survey from the Royal Institution of Chartered Surveyors (RICS) pointed to continued weakness in house buyer demand. The research flagged concerns about the impact of uncertainty over the upcoming autumn budget in November and the prospect of further property-related taxes being announced.

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In addition to the findings on demand for mortgage lending, the BoE's quarterly credit conditions survey on Thursday also looked at the outlook for loan pricing. In the survey, lenders reported that the length of interest-free periods on credit cards for balance transfers and for purchases both increased in the third quarter.

Lenders also expect the length of interest-free periods on both products to increase in the fourth quarter, in the run-up to Christmas.

At the same time, the BoE said its survey showed that defaults on credit cards are expected to increase in the final three months of the year.

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