Both household and corporate credit demand fell slightly in 2022 Q3. Overall credit standards for households and firms were approximately unchanged in Q3, but standards for households are expected to tighten slightly in Q4. Some banks reported that the use of interest-only periods for new residential mortgage loans increased somewhat in Q3, and this is also expected by a number of banks for Q4. For new commercial real estate (CRE) loans, several banks reported that owing to developments in 2022, they are requiring somewhat stricter equity ratio and debt-servicing capacity requirements.

Households

Overall, banks reported slightly lower residential mortgage demand in 2022 Q3 compared with Q2 (Chart 1). Banks expect demand to decline somewhat in Q4. Demand for fixed-rate loans was little changed.

On the whole, credit standards for households were broadly unchanged in Q3, but banks expect them to tighten a little in Q4 (Chart 1). A number of banks reported that the economic outlook is a factor that in isolation had a somewhat tightening effect on their credit standards in Q3, and the same applies to banks’ expectations for Q4.

Overall, banks reported slightly lower residential mortgage lending margins in Q3 (Charts 1 and 2). Banks’ responses regarding lending margins varied. There was a fairly substantial increase in both funding costs and lending rates (Chart 2). Banks expect both funding costs and lending rates to edge up in Q4, while lending margins are expected to remain approximately unchanged.

In this Survey, banks were also asked about developments in new residential mortgage loans. Four in ten banks reported somewhat increased use of interest-only periods for new loans in Q3, and six banks expect some increase in Q4 (Chart 3). No banks reported changes in repayment periods. Two banks expect a somewhat higher loan-to-value ratio for new loans in Q4. One bank reported a somewhat lower DTI ratio for new loans in Q3, and two banks also expect this in Q4.

Enterprises

For non-financial enterprises, banks as a whole reported slightly lower credit demand in Q3 (Chart 4). Credit line utilisation was approximately unchanged. For Q4, banks expect approximately unchanged overall credit demand. A number of banks reported somewhat lower demand for CRE loans in Q3 and several banks also expect some decline in Q4.

Overall corporate credit standards were approximately unchanged in Q3, and banks expect no change in Q4 (Chart 4). Some banks reported somewhat tighter credit standards for CRE firms in Q3 and expect the same for Q4. A number of banks reported that both the economic outlook and the sector-specific outlook contributed in isolation to somewhat tighter credit standards in Q3, and most expect that these outlooks will also have a somewhat tightening effect in Q4. In this Survey, banks were also asked whether credit standards had changed in specific sectors. Most banks responded that credit standards had not been tightened and were not expected to be tightened for particular sectors besides the CRE sector.

Overall, banks further reported that lending margins on corporate loans increased slightly in Q3 and that slightly higher margins are also expected in Q4 (Charts 4 and 5). There was a fairly substantial increase in both funding costs and lending rates in Q3 (Chart 5). Banks also expect a fairly substantial increase in lending rates in Q4, while funding costs are expected to edge up.

In this survey, we asked banks if their assessment of the CRE segment had been affected by developments in 2022 such as lower economic growth, higher interest rates and higher bond market premiums. Three banks responded that the risk of a decline in CRE prices had increased considerably and the seven others responded that the risk had increased somewhat (Chart 6). Half of the banks responded that their equity ratio requirements for new commercial property mortgages have increased somewhat and a majority reported somewhat higher debt-servicing capacity requirements for new loans. Most of the banks have increased their margins for new CRE loans, while the margins on existing loans are unchanged for most banks. The majority of the banks reported lower competition from the bond market.