Bank of England survey shows lenders see mortgage lending rebound

LONDON (Reuters) - British lenders expect mortgage lending to bounce back sharply in the final three months of 2014 after a recent severe slowdown in lending, a Bank of England survey showed on Tuesday.

The BoE's quarterly survey of lenders suggests the slowdown in mortgage lending and house price growth seen in recent months may prove to be temporary - something on which policymakers had previously been unsure.

The credit conditions survey showed that for the third quarter of 2014, lenders reported the biggest fall in the amount of credit they were able to supply since the last three months of 2008, when Lehman Brothers collapsed.

This was partly due to reduced risk appetite and concerns about the outlook for house prices, and came shortly after regulators required them to impose tighter affordability checks on new borrowers.

"Many lenders noted that operational issues associated with the implementation of the Mortgage Market Review had pushed down on credit availability over the summer," the survey said.

Last week Bank of England data showed that mortgage lending in August fell to a three-month low, and major mortgage lender Nationwide reported that house prices fell in September, the first month-on-month drop in 17 months.

However, lenders said in the BoE survey that they expected both demand for mortgages and their willingness to supply them to bounce back strongly in the final three months of the year, citing a desire to rebuild market share.

Average house prices are still nearly 10 percent higher than a year earlier, though this masks big regional variations. House prices in London are more than 30 percent above their 2007 peak, while in the rest of the country they are just 1 percent higher.

The picture elsewhere in the lending market was less dramatic. Unsecured lending to consumers is forecast to continue to grow rapidly, while business lending volumes are expected to remain stable.

BoE figures last week showed that business lending in August was 2.8 percent lower than a year ago, the smallest drop since annual records began in April 2012.

British business investment is starting to pick up after a long hiatus following the financial crisis, helping the economy to rebalance, but much of this is done by larger firms which are able to bypass banks and raise money directly from bond markets.

(Reporting by David Milliken and Ahmed Aboulenein)