Borrowing is set to become even harder as the credit crisis becomes worse over the next three months, the latest Credit Conditions Survey from the Bank of England has revealed.
The survey of lenders predicts that the credit crisis is going to get worse before it gets better. Results show that secured credit availability has fallen 30.7 per cent in the last three months and is expected to fall further over the next quarter with results for unsecured credit availability much the same.
When asked for a reason for the sudden decline in secured and unsecured loan
availability, 35.3 per cent of lenders said it was due to the current economic outlook and 33.2 per cent argued that their appetite for risk had changed.
As credit availability falls, the survey shows that demand for re-mortgaging has grown by 40.8 per cent in the last three months and will continue to grow.
This inconsistency is highlighted by the current mortgage market, where banks and building societies are rapidly withdrawing and changing the rates of popular mortgage
products, First Direct withdrew its 2 year fixed rate deal to new customers earlier this week and other banks are expected to follow suit.
According to the Bank of England, the near future is bleak for home owners, commenting on the current financial climate and its effects on the economy, Paul Tucker, executive director and member of the Monetary Policy Committee (MPC) of the Bank of England said:
"Credit conditions are unambiguously tighter than two months ago, underlining that source of downside risk to the outlook for demand and inflation.
"In retail lending markets, banks have raised the interest rates charged (relative to Bank Rate) on new lending, but they have all been doing much the same and many borrowers seem to have been willing to pay the extra.
"In consequence, banks generally may not have achieved their desired conservation of balance sheet capacity, and we are now seeing the withdrawal of some lending products." Mr Tucker continued.
As default mortgage rates rise out of sync with the base rate, a much speculated bank rate cut by the MPC will not do much to help home owners currently feeling the squeeze. Banks appear to be fending for themselves as they cut lending and increase savings rates to entice potential investors who will strengthen their finances.
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