(Sharecast News) - HSBC has been forced to throttle back on low-deposit mortgages in the face of huge demand for loans and a surprise rise in house prices.
The lender on Wednesday said it was restricting allocations of 90% mortgages in a move that would put more pressure on first-time buyers.
Its decision came as UK house prices reached a new all-time high in August thanks in part to pent-up demand following Covid-19 restrictions, according to mortgage lender Nationwide.
Prices rose 2% on the month to £224,123, following a 1.8% increase in July. This marked the biggest monthly jump since February 2004 and pushed annual house price growth up to 3.7% in August from 1.5% the month before.
HSBC said it was temporarily reserving mortgages worth more than 85% of a home's value to customers switching interest rates in the face of "very significantly increased demand for higher LTV mortgages" after the coronavirus lockdown.
The bank's UK head of buying a home Michelle Andrews said mortgage market participation had been "volatile at higher LTVs which has led to significant consequences on service levels and our colleagues for those who, like HSBC UK, have remained open for business at those higher LTVs".
"This is a temporary change for us. We look forward to other lenders joining us back in the market as well."
Andrews said the lockdown easing and temporary stamp duty cuts had "injected fresh impetus" to the market, but the surge in demand had swamped HSBC's mortgage operation.
"Offering a competitive product and being able to provide a great and timely service is extremely important to us and the recent significant uptick in applications has meant that we have not been able to consistently meet the high standards we set ourselves, which is not always a positive experience for our customers and can delay and put a property purchase at risk," Andrews said.
"Temporarily reserving our mortgages at over 85 per cent LTV for those switching rates only is not a decision we have taken lightly, but one we will be reviewing regularly."
House builder Barratt on Wednesday reported a sharp rise in completions despite the Covid-19 pandemic halving annual profits. It also warned that banks were tightening lending criteria, making it harder for first-time buyers to enter the market.
Banks are concerned that the worst of the economic impact of the crisis is yet to come. With job cuts looming as government wage and business support measures wind down, they are bracing for a wave of loan defaults with most setting aside billions in provisions to cover bad debts.
HSBC last month reported a 65% slump in half-year profits as it increased provisions for bad debts by $3.8bn and accelerated plans to cut 35,000 jobs.
(Sharecast News) - Analysts at Numis have upgraded their view on shares of HSBC following the lender's first quarter results.