The number of home loans on offer has halved as banks tighten their lending criteria in the wake of the coronavirus pandemic.

The number of mortgages available for buyers to choose from has fallen to the lowest level since 2010.

A total of 2,259 mortgages are now available – that’s less than half the number that was on offer in October last year, according to Moneyfacts.

Average interest rates on mortgages have also risen for the third month running, although the typical cost of a two-year and five-year fixed rate deal is still lower than it was in March.

Meanwhile, the Bank of England’s Credit Conditions Survey showed that banks and building societies had tightened their lending criteria for mortgages between July and September, with further tightening expected in the next three months.

Why is this happening?

The coronavirus pandemic along with its associated lockdowns and job losses has made lenders more cautious.

They are also bracing themselves for a rise in repayment arrears in the coming months as mortgage payment holidays come to an end.

Banks and building societies have reviewed and streamlined their mortgage ranges, as well as become pickier about who they lend to.

At the same time, they are taking the opportunity to increase their margins - the difference between the rate they borrow money at and the rate they charge customers – to make mortgages more profitable.

Who does it affect?

First-time buyers have been particularly hard-hit by lenders reassessing their mortgage ranges, with many deals for borrowers with small deposits having been pulled from the market.

In October, the number of mortgages for buyers with a 5% deposit fell to just 12, compared with 391 in March.

Meanwhile, there are now 51 mortgages for people with a 10% deposit - down from 779 seven months ago.

But lenders are not just pulling loans for buyers borrowing a high proportion of their home’s value. 

The number of different deals available has fallen in all but two loan-to-value (LTV) brackets, including the 60% one, which is usually the tier lenders reserve their most competitive rates for.

What’s the background?

Despite tightening their lending criteria, banks and building societies are still very much open for business, as evidenced by the number of mortgages approved for house purchase reaching a 13-year high in August.

In fact, the Bank of England survey showed that although there is now less product choice, lenders actually increased the funds they had available for mortgage lending during the third quarter and they do not plan to restrict lending levels in the final part of the year.

But despite banks and building societies typically launching their most competitive deals between October and December, as they look to meet their annual lending targets, this year they expect to further increase the interest rates they charge on mortgages.

Top three takeaways 

  • Mortgage availability has dropped to the lowest level since 2010 
  • The number of mortgages available is also less than half the number that was on offer a year ago
  • Lenders have tightened their credit criteria – and further tightening is expected in the coming three month.

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