Bank of England reports mortgage availability best since 2007

There were encouraging signs that the Bank of England’s Funding for Lending Scheme (FLS) is injecting life into the mortgage market as the bank’s latest quarterly credit conditions survey was released yesterday.

The survey showed a “significant” increase in the availability of secured lending, including mortgages. The figures showed the largest proportion of lenders reporting an increase in mortgage availability since records began in 2007.

Perhaps more significantly, the improved mortgage availability was strongest amongst borrowers with less than 25 per cent equity or deposit. This is the segment of the mortgage market that has struggled to secure credit in recent years.

The Bank of England said it had seen early progress in FLS unclogging the flow of credit to potential homeowners but warned that it may not be enough to cause overall mortgage borrowing to rise in the next 18 months as other factors such as the euro debt crisis continue to weigh down on consumers financial decisions and the cost and availability of finance through the markets.

A Treasury spokesman said: "The Bank's figures today show that the number of mortgages out there for people looking to buy a home has increased significantly over the last three months, and that the Funding for Lending Scheme will help ensure that this continues in the coming months."

Howard Archer, of the consultancy IHS Global Insight, said: “It is undoubtedly good news to see that banks made substantially more credit available for mortgages in the third quarter. This offers genuine hope that housing market activity will pick up over the coming months.”

Vicky Redwood, chief UK economist for Capital Economics, said: "Overall, the outlook for bank lending is better than it was a few months ago, helped by the latest policy initiatives. Nonetheless, we think it will be a long and slow process to get credit flowing freely around the economy again."

However, overall lending to small and medium-sized businesses was unchanged in the quarter.

Ms Redwood said that even if more credit was available it did not necessarily follow that consumers would want to borrow more money.

Free guide to savings and investments