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UK lenders’ expectations for mortgage demand rose sharply at the end of last year, according to official data published on Thursday, as falling borrowing rates fuel a rebound in the property sector.
The index for expected mortgage demand for house purchases rose to 21.9 per cent in the final three months of last year from minus 28.4 per cent in the third quarter, according to the Bank of England’s quarterly survey of banks and building societies.
The index tracks the proportion of lenders forecasting an increase in demand over the next three months minus lenders predicting a decrease.
Although the index for demand for mortgage lending in the fourth quarter was still negative at minus 31.6 per cent, it was up sharply from the minus 54.9 per cent reported in the previous three months.
Over the same period, the net proportion of lenders reporting rising mortgage defaults eased to 23.6 per cent from 43.3 per cent.
The BoE data adds to growing evidence that the property market is improving as mortgage rates have fallen from their summer peaks on the back of falling interest rate expectations, on which fixed deals are based.
In December, estate agents expected house sales to expand in the year ahead, according to separate figures published on Thursday by the Royal Institution of Chartered Surveyors, a professional body.
Mortgage approvals hit a six-month high in November, according to BoE data published this month, while Nationwide’s house price index increased in November and December.
On Wednesday, the Office for National Statistics said house prices had fallen at the fastest pace in more than a decade in the year to November 2023, but its figures are based on transactions agreed many months earlier.
“All of the data suggests a recovery in the housing market in 2024,” said Tomasz Wieladek, chief European economist at investment company T Rowe Price. He added that households had more scope to make mortgage payments since wages were rising faster than the rate of inflation.
The improvement in the housing market could also boost output in construction, spending on housing-related goods and services and household confidence, helping the wider economy.
The BoE’s credit conditions survey was conducted between November 20 and December 8, when financial markets were still expecting the central bank to cut its benchmark rate less than they expect at present.
Tomer Aboody, director of property lender MT Finance, said high inflation and interest rates had weighed on the property market last year, but “better sentiment is expected with encouraging prospects for the year ahead”.
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