Mortgage lending activity is set to dip in the coming weeks but bounce back strongly, Knight Frank has forecasted.

The agency is reacting to Bank of England figures showing that home loans were set to drop in the third quarter of the year after a healthy second one.

Remortgaging is looking more resilient with an increase in Q2 followed by a similar rise in Q3, the Bank is predicting.

Lenders expect demand for home purchase mortgages to soften through the summer.”

Simon Gammon, Managing Partner at Knight Frank Finance, says: “Lenders expect demand for home purchase mortgages to soften through the summer – a seasonal trend, but also a reflection of where mortgage rates were when the survey was taken in late May and early June.

“At that point, the best fixed-rate pricing had plateaued just below 4%, and with swap rates edging higher due to hotter-than-expected inflation data, there appeared little scope for further easing.”

Picture shifted

But the situation has changed since the survey of lenders was done, he says.

“That picture has shifted. We’re now seeing signs of a weakening labour market, and the Bank of England’s tone has changed – there’s more focus on downside risks to growth than inflation.

“That’s helped drive rate cuts from all major lenders in the past ten days, often by as much as 0.2 percentage points.

Much busier

“While further reductions will be marginal, this could support mortgage activity over the summer and tee up a much busier autumn,” he says.

“The remortgaging market remains more robust. Demand rose in Q2 and is expected to climb further through the summer as 1.8 million borrowers refinance this year, many coming off the ultra-low rates agreed in 2020.”

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