The Credit Conditions Survey that was conducted between May 27 and June 18 this year showed that lenders have significantly reduced the number of mortgages on offer. The survey showed that lenders managed this through tightening criteria and decreasing maximum loan to value (LTV) ratios.

The news comes despite the Bank’s attempts in April to alleviate the pressure felt by high inter-bank lending rates (Swap rates) with its Special Liquidity Scheme that has yet to filter down to borrowers.

According to experts, banks are still building up a liquidity stash to cushion them in case of future financial turmoil, and consequently are less inclined to risk lending too much to consumers.

The Bank’s credit survey reflected this feeling as it showed how lenders are expecting the housing market to deteriorate further over the next three months. Confidence in borrowers’ ability to keep up with mortgage repayments is also down according to the report that showed lenders expecting default rates to rise over the next quarter.

As mortgage criteria’s tighten, the report also showed that demand for mortgage lending over the past three months is down, whereas demand for remortgage lending has seen a surge and that pattern is expected to continue over the next three months.

As secured lending conditions decline, unsecured lending has also taken a knock according to the Bank of England. However, credit card lending has remained at a steady level over the past three months although credit limits have generally been reduced and criteria tightened.

In response to the Bank’s results, the Council of Mortgage Lenders (CML) has hit out at the authorities, claiming they could do more by way of intervening and reinstating wholesale funding sources to the mortgage market.

Michael Coogan, CML director general, said: “Neither the cost nor the availability of wholesale funds has improved for lenders since the Bank of England launched its special liquidity scheme, helpful though that scheme is. This means that cost and availability to customers has not improved either. And this in turn means that consumers are now beginning to give up and demand is falling, with confidence in the housing market falling with it.”

© Fair Investment Company Ltd