Lender appetite increases but demand remains weak, says BoE
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The latest Credit Conditions Survey from the Bank of England shows that a number of lenders increased lending in Q4, but consumer demand still remains weak.
In the three months to early September, a small net balance of lenders reported that there had been an increase in the amount of new secured credit made available to households, contrary to expectations.
Some lenders commented that heightened concerns about the outcome of the stress tests on the European banking sector undertaken by the Committee of European Banking Supervisors had tightened funding conditions temporarily during the previous quarter.
Following the release of the stress-test results, lenders commented that funding costs had fallen somewhat.
But the survey shows lenders do not expect a further increase in the availability of secured credit to households over the next three months,reporting that the outlook for the economy was expected to constrain availability.
Over the previous four quarters there had been consecutive increases in the availability of new secured lending at LTV ratios greater than 75% and increases in the maximum LTV on which new secured lending is granted.
Households’ demand for secured credit to finance a new house purchase fell unexpectedly for the third consecutive quarter in 2010 Q3, but was expected to pick up over the coming quarter.
But within that, demand for secured lending to finance buy-to-let investments rose slightly, in line with expectations, and for the first time since 2008 Q3. A further increase in demand in Q4 was not expected.
Some lenders commented that the changes reflected a more cautious approach to assessing the ability of households undertaking higher LTV mortgages to meet mortgage payments or lending to the self-employed.
Consistent with this, a net balance of lenders reported that the loan approval rate was expected to fall in Q4 for the first time since early 2009.
Kelvin Davidson, property economist at Capital Economics, says: “Lenders have continued slowly to improve the volume of credit that is available, if not its terms. However, demand for finance appears to be faltering, suggesting that lending flows in both markets will be very weak this year.
“Positively for the housing market, a small majority of lenders reported that they increased the availability of secured credit to households in Q4 and intend to do so again in the next three months.
“However, it is another matter whether or not demand for that credit will actually exist. Indeed, the net balance relating to demand for commercial property lending was minus 18% in Q4, the first negative reading since Q2 2009.
“What’s more, lenders envisage that demand for finance will fall further in the next three months. This is consistent with a wide range of other indicators showing that the commercial property market lost momentum abruptly in the last few months of 2010.”
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