Page last updated at 12:02 GMT, Thursday, 2 July 2009 13:02 UK

More defaults expected on loans

Bank of England
The Bank says lenders expect more credit to be made available

The number of people defaulting on loans has risen and is expected to increase in the coming months, a Bank of England survey has found.

The poll of banks and building societies found more people were unable to repay mortgages and other debts.

The state of the economy, including rising unemployment, was key to the rising figures.

The poll also found that lending to businesses had not risen as fast as had been expected in the past three months.

But financial institutions said that they expected the availability of credit to businesses to rise in the next three months.

The Bank's Credit Conditions Survey tests the financial climate.

'Not encouraging'

Householders were likely to be offered, and demand, more credit which was secured on their homes in the next three months, the Bank found.

A rapid return to pre-credit crunch lending volumes and products remains extremely unlikely
Paul Samter, Council of Mortgage Lenders

However, the opposite was true for unsecured loans - such as credit cards and personal loans - which was expected to be squeezed slightly over the next quarter.

Vicky Redwood, of Capital Economics, said the survey was "not overly encouraging about the outlook for bank lending".

"Overall, we continue to doubt that lending will rise by enough to support a strong and sustained recovery in the wider economy," she said.

Paul Samter, economist for the Council of Mortgage Lenders (CML), said that some government-supported banks has promised to increase lending, but others were in a much tighter position.

"A rapid return to pre-credit crunch lending volumes and products remains extremely unlikely," he said.



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