Bank of England: Tighter borrowing conditions ahead
Thursday, 03 Apr 2008 11:06
Mortgage availability set to shrink further, Bank of England says
The Bank of England (BoE) predicts home buyers will find it even harder to secure a mortgage in the next three months as banks tighten lending criteria.
The BoE's Credit Conditions Survey also found unsecured credit – from personal loans to credit cards and overdrafts – is expected to get somewhat harder to obtain in the next quarter.
As mortgages are squeezed off the market, demand from homeowners and buyers for mortgages has remained unchanged – although a stagnant property market is expected to cut demand for home loans. Demand for buy-to-let mortgages rose.
The coming three months are also expected to see a rise in repossessions – as the slowing economy, rising prices and mortgage repayment increases put homeowners under pressure.
The Bank's report puts the fall in
mortgage lending down to lenders' reduced risk appetite – meaning those deemed to be higher risks are having mortgage options closed – along with concerns over the economy and the housing market.
Remortgage demand rose more highly than expected and is due to increase as borrowers coming to the end of the fixed or discounted interest period on their mortgages look to refinance with an alternative deal.
Commenting on the figures, Howard Archer at Global Insight said tighter borrowing did not bode well for the UK economy.
"Credit conditions heap pressure on the Bank of England to cut
interest rates again next Thursday despite current elevated inflation concerns," he said.
"It still looks a close call, but we expect the Bank of England to trim interest rates from 5.25 per cent to five per cent. Further out, we see interest rates falling to a low of four per cent in the first half of 2009."