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July 2, 2009

Secured credit eases slightly but defaults rise

by Gill Montia

Story link: Secured credit eases slightly but defaults rise

The Bank of England has published its latest Credit Conditions Survey covering the three months to 12th June 2009.

During the period, lenders slightly increased the availability of secured credit to households, with improvements in the cost and availability of funds behind the rise.

Unsecured lending to consumers fell during the period and a further “small reduction” is expected in the current quarter.

There was a rise in credit availability to the corporate sector, although less than expected and demand for unsecured lending from small businesses fell (apart from credit card lending) but is expected to recover over the coming months.

According to the Bank, concerns about the economic outlook continued to have a negative effect on credit availability but the impact during Q2 was smaller than in previous surveys.

Default rates and losses on secured and unsecured lending to households rose, with lenders predicting further increases in the current quarter.

The survey indicated that high loan-to-value (LTV) mortgages should be easier to come by during third quarter of the year, with lenders anticipating a slight easing in credit criteria.

Council of Mortgage Lenders’ economist, Paul Samter, has responded to the survey by acknowledging the positive aspects but pointing out: “Some of the increase in capacity is due to commitments made by some large lenders signing up to the asset protection scheme.”

He believes that loss of capacity across other parts of the industry makes a rapid return to pre-credit crunch lending volumes “extremely unlikely.”

 

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