Lenders remain reluctant to offer mortgages above 90% LTV, according to Bank of England figures, bolstering the case for Help to Buy 2.
The Bank of England's Credit Conditions Survey showed mortgage demand "increase significantly" in Q3 2013, and should "increase slightly further" in Q4.
Lenders also reported a significant increase in demand for secured lending for remortgaging in Q3.
Low mortgage rates, driven partly by the Funding for Lending Scheme, have helped boost demand. Growing consumer confidence and a pick up in house price growth also helped.
Although lenders are offering significantly more mortgages above 75% LTV, buyers with deposits of less than 10% are still struggling, said Brian Murphy, head of lending at Mortgage Advice Bureau. "The survey is a timely reminder of what Help to Buy 2 can bring to the mortgage market. While credit has become widely available above 75% LTV ratios, lenders are still cautious about lending above the 90% mark.
"Recent improvements have been driven by a push for market share rather than greater appetite for risk, so it is clear why the government has moved to boost confidence in this area and put the market on a surer footing.
“The first group of Help to Buy lenders will have a head start in terms of public awareness, but these early adopters are sure to be joined by others as the scheme develops.
"It is important not to expect too much too soon: the first products may not ‘wow’ buyers but once lenders have had time to size up the competition, we should see more attractive deals emerging."
Murphy said the average LTV for house purchase has been fairly static over the last year but Help to Buy should tip the balance further in favour of buyers without encouraging irresponsible lending.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said lenders had been waiting for the mortgage guarantee element of Help to Buy before offering more higher-LTV loans. "The Bank's figures underline that there is a real need for 95% mortgages for those who can afford the mortgage payments but only have a modest deposit."
Harris predicted another another rate war in Q4 as lenders join battle to get their 2013 lending targets. "Lenders are keen to stress that they haven't changed their risk appetite, suggesting that they are as stringent as ever on underwriting with no relaxation on credit scoring.
"This is admirable but lenders do want to increase their market share: many will have one eye on the year-end and where they want to be in terms of volume of lending done by the end of December.
"If they are set to undershoot their targets, now is the time where they need to offer more competitive products. This should be excellent news for borrowers.
"Brokers and agents are likely to be extremely busy in the final quarter of the year as demand shows no signs of abating.
"For many would-be borrowers, this is finally an opportunity which is just too good to miss."
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