To Top

U.K. Banks Lower Lending Standards to Maintain Growth in Home Sales

The UK housing market has been in the doldrums for the past several months as homeowners are becoming more and more reluctant to sell.

In July, real estate prices fell flat and the market is showing no signs of pick-up in activity. Now banks and lenders are lowering mortgage standards and fees to help the housing industry grow.

According to the monthly report from mortgage lender Halifax, prices grew by 0.3 per cent in June in comparison to the previous month

Housing Market Stagnates

According to the monthly report from mortgage lender Halifax, prices grew by 0.3 per cent in June in comparison to the previous month, following a 1.5 per cent rebound in May and over 3 per cent fall in the month of April.

Home prices were only 1.8 per cent higher in the second quarter than the same period in 2017, much to the disappointment of homeowners who were expecting to make a larger profit on their homes than a year ago.

According to Halifax, the housing market could end up staying stagnant for the remainder of 2018, with prices expected to rise only 3 per cent over the entire year.

As growth becomes stagnated, homeowners are choosing not to sell their properties, creating a shortage on the market. Home sales had dropped 5 per cent in the first quarter compared to last year’s buying activity.

Even though sales started to pick up in May, the 2.5 per cent increase wasn’t nearly enough to offset the first quarter’s slump. Before the slight increase in growth in May, the housing market had seen 26 consecutive months of decline in sales. Halifax said that the approval levels indicate that sales aren’t likely to grow over the next few months unless the banks adopt a change in their lending standards.

Banks Lower Lending Standards

Banks are starting to heed experts’ advice and lowering lending fees and standard to boost growth in home sales. Competition and slow construction has weakened U.K.’s housing market, resulting little to no profits for sellers and property dealers.

A comparison website called MoneyFacts recently revealed that the number of banks who have increased their lending limit to 90 per cent of the home value has grown by 20 per cent over the past 6 months. The total number of mortgage deals with lower lending standards has now reached 1,123.

One of the biggest banks in U.K., M&S Bank of HSBC, raised its loan-to-value limit to 95 per cent on three of its mortgage products. The bank also extended the lending term to 35 years.

One of the senior executives at the institution said that most people are going for volumes but in the current market conditions, people need to be careful not to take any risks that will result in long-term losses. CYBG also increases is loan-to-value maximum limit to 95 per cent depending on how much the borrower earns.

Intense competition between lenders has also driven mortgage rates below historic levels despite an increase in funding costs


Intense Competition

Other lenders are also lowering mortgage standards by either increasing maximum limits on loans, reducing arrangement fees or lowering interest rates on the highest loan-to-value mortgages. These initiatives are bound to increase buying activity in a currently-stagnant housing market. They also reflect the lenders’ efforts to safeguard their business from the shrinking real estate profits.

Intense competition between lenders has also driven mortgage rates below historic levels despite an increase in funding costs. Most of the competitiveness has stemmed from an increasing number of independent mortgage brokers which have made a wide range of lending options available for the borrowers to choose from.

Banks also have to face new rules for separating their investment and retail banking operations, a move that has HSBC with over £60 billion capital that couldn’t be used by the group. The bank decided to spend the money on mortgage expansion instead, putting other competitors under more pressure.

Some of the biggest lenders in the U.K. have also experienced lower net interest margin due to diminishing interest rates on loans. Almost 16 out of 20 banks made weaker margins due to pressure from the mortgage businesses, according to FT’s analysis. The Bank of England recently raised interest rates which has given hope to other lenders that mortgage rates could finally rise in the next few weeks.

Will lower mortgage rates give the U.K. real estate market a much-needed boost?

More in Global Markets


  1. Donny

    August 30, 2018 at 2:05 am

    This is definitely a major plus for us ?

  2. Louis Villa

    August 30, 2018 at 2:06 am

    I guess the boost is necessary but it does benefit brits in a huge way

  3. Jace Herondale

    August 30, 2018 at 2:45 am

    It’s about time! We’ve been suffering in paying these hefty amount of home loans all our life!

  4. Arjun Chowdhari

    August 30, 2018 at 12:34 pm

    I’ve never been a big fan of mortgages, been renting my spot for the past 20 years!!

  5. rebecca hart

    August 31, 2018 at 12:20 pm

    It’s a byproduct of these tough economic times that we’re in. However, can’t complain as a client 🙂

  6. desiree250

    August 31, 2018 at 12:32 pm

    A friend of mine advised me against applying for a mortgage a few years back. Looks like I’ll try it now 🙂

  7. Mark Blackthorn

    September 1, 2018 at 2:47 am

    Lower the mortgage rates and I know everbody will avail a home loan!

  8. Kieran555

    September 1, 2018 at 2:48 am

    I think so. but they still need to compete with these independent mortgage brokers! Dealing with lots of paperwork turns me off from availing a mortgage.

Leave a Reply

Your email address will not be published.