Print

BoE: Mortgage misery to mushroom

Problems in UK mortgage market could intensify over the next few months, claims the BoE.

According to the latest Credit Conditions Survey by the Bank of England, the UK's mortgage malaise could intensify over the three months. The survey revealed that:

- Lenders will put a further squeeze on the availability of home loans from July to September.

- The amount of unsecured lending, such as overdrafts and credit cards, is expected to fall.

- Lenders expect the number of people who default on mortgages to rise.

- 55% of lenders surveyed believe that expectations for house prices had affected overall mortgage availability during the past three months.

- 69% of lenders believe this will also be a factor in the next three months.

- 38% believed tighter wholesale funding conditions affected availability in the past three months.

- 39% identified wholesale funding as an issue for the next quarter.

The BoE survey asks lenders to gauge what they have experienced in the previous three months and what they predict for the following quarter.

Tough outlook

A BoE Spokesperson noted: "A significant factor in the tightening of the mortgage market over the past three months was the fact that lenders expected house prices to fall". 

"The outlook is also looking tough for small businesses, with a reduction in corporate credit availability predicted for the next three months, and default rates on loans expected to rise".

Howard Archer, chief UK and European economist at Global Insight, added: "Along with news that service sector activity contracted in June, tighter credit conditions heaps pressure on the Bank of England to hold off from raising interest rates despite current elevated inflation levels and risks".

Fewer than 4,000 different types of mortgage are now on offer, compared with more than 11,000 a year ago

Lasting damage to the economy?

Commenting on the survey's findings, Michael Coogan, Council of Mortgage Lenders director general, highlighted the problems faced by housebuilders in the current climate:

"The problems currently being experienced by house builders amply illustrate the lasting damage this can inflict on the wider economy.

"But it is not too late to take steps to address the fundamental problem, which is the lack of funding available through wholesale mortgage funding channels.

"We urge James Crosby and the Chancellor to implement the necessary policies to achieve this objective."