BoE: Mortgage availability cut

Thursday, 03 January 2008 12:00

Mortgage and loan borrowers will find securing a loan in 2008 harder as the credit crunch bites consumers.

The Bank of England's Credit Conditions Survey reveals UK lenders reported the availability of secured credit and mortgages to households was "reduced materially" over the last three months.

This was against Bank predictions in September.

The fall in secured credit availability was said to be due to "lenders reducing their risk appetite, and targeting a slightly lower market share".

Mortgages have been made harder to obtain through tightening of credit scoring criteria and by reducing maximum loan to value ratios - the maximum someone can borrow against the price of a property.

Further reductions in mortgage availability are expected in the next three months.

However, demand for mortgages has remained stable - but more borrowers were looking for subprime, buy-to-let and remortgage deals.

Demand for mortgages is expected to fall over the next three months, but the need for remortgages - as millions come off fixed-rate deals and find repayments rising substantially - will increase.

The Bank of England report also showed default rates from mortgage borrowers changed little in the last three months - but 2008 is expected to see increases in people failing to meet mortgage repayments.

"The Bank of England credit conditions survey for the fourth quarter indicated that lending to households had tightened and become more expensive," said Howard Archer, chief economist at analysts Global Insight.

"The survey revealed that demand for prime lending for house purchases had been weaker than expected in the fourth quarter of 2007, adding to the mounting evidence that the housing market is cooling markedly.

"While demand for buy-to-let loans was above expectations, this appears to have been influenced by a number of other lenders cutting back on credit availability for this."

The availability for unsecured credit - such as personal loans and credit cards - reduced a little over the last quarter and a slight reduction is expected for the coming three months.

Demand for credit card borrowing rose and for personal loans fell in the last three months and is expected to remain stable in the coming year.

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