UK lending is set to fall even further as banks and building societies react to falling house prices and the economic downturn.
The Bank of England’s latest credit conditions survey also reports falling demand from consumers for both mortgages and secured credit.
The survey of lenders found a net balance have reduced the amount of credit they are prepared to make available by more than expected over the past three months.
Lenders also expect further reductions in credit availability during the final quarter of 2008.
However, borrowers looking for loans of 75% LTV or less have seen a slight rise in credit availability, due to the larger safety net these borrowers have against further falls in house prices.
“Lenders reported that the changing economic outlook, their expectations for the housing market, and changes in their appetite for risk had contributed to the decline in credit availability,” the report says.
“These factors, together with tighter wholesale funding conditions, were expected to contribute to the tightening in credit over the next three months.”
Default rates and losses have risen in line with expectations and are expected to increase during the next three months.
Consumer demand for both house purchase and remortgage loans has fallen, despite lenders predicting remortgage demand would increase during a previous Bank of England survey. Future demand is expected to remain subdued.
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