Page last updated at 11:26 GMT, Thursday, 2 April 2009 12:26 UK

'More credit' for homes and firms

Bank of England
The Bank of England says banks are expecting to increase lending

Britain's banks and building societies are set to make credit more easily available to homeowners and businesses, according to a Bank of England report.

It said lenders had been tightening the availability of secured credit to households, as home prices continued to fall in the first quarter of 2009.

But lenders are now set to boost available credit in the second quarter.

It comes as Nationwide's survey found house prices rose 0.9% during March, the first rise in 16 months.

"The economic outlook was no longer expected to be a factor bearing down on credit availability," the Bank of England survey said, of the lenders' new outlook.

"Improvements in the cost and availability of funds were expected to support increased credit availability over the next three months."

Lending demand

Demand for secured lending for house purchases and for remortgaging was reported to have declined over the past three months, with lenders expecting demand for secured lending to fall further.

Even if lending does start to rise, it is unlikely to get back to the levels required to produce decent rates of economic growth in the foreseeable future
Vicky Redwood, Capital Economics

But the majority of the banks and building societies quizzed for the Bank's Credit Conditions Survey said they expected an increase in lending to households in the next three months.

There have been complaints from the business community that banks have been pulling back on lending, leaving then hamstrung during the downturn.

But the survey shows that corporate credit availability increased slightly in the first three months of 2009, despite an anticipated fall.

This increase in available credit to businesses is likely to continue in the next three months, with the majority of lenders saying demand for credit from small businesses would rise.

But lenders also reported a tightening in their lending criteria for the corporate sector, with loan covenants being tightened by more than expected, while maximum credit lines had fallen and collateral requirements had increased slightly, with further tightening anticipated in the future.

Credit crunch effect

The effect of the credit crunch on householders was shown by lenders reporting that the availability of mortgages had been squeezed for many householders in the past three months. There was a rise in the numbers defaulting on these loans, as expected.

Mortgage application forms
There has been a rise in the number of people defaulting on home loans

First-time buyers were hit as credit for people offering a deposit on a home of less than 25% saw lending tightened by more than expected. Those borrowing less than 75% of the value of a home found getting a home loan had become a little easier.

This trend, including rising default rates, was expected to continue. Those who will still find it difficult to get a home loan will include people with a chequered credit history and those wanting to borrow a high multiple of their salary.

There had been less of a fall in lending through unsecured credit cards and loans than expected, although an increasing number of people unable to pay them back is predicted in the next three months.

Vicky Redwood, UK economist at Capital Economics, said: "The survey was moderately encouraging in suggesting that lenders intend to start loosening credit conditions.

"But even if lending does start to rise, it is unlikely to get back to the levels required to produce decent rates of economic growth in the foreseeable future."

She added that lending increases could be "pretty marginal".

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