A new survey by the Bank of England indicates that UK mortgage companies expect lending
conditions to remain steady in the first three months of 2011, but are preparing for a further drop
in mortgage demand – and higher losses from mortgage defaults – as we move further into the new
year.
The Bank’s Credit Conditions Survey, published every three months, indicates lenders’ continuing
reluctance to approve mortgages in the current economic conditions, with further possible drops in
house prices.
The survey – which the bank carries out with banks and other lenders to help it understand credit
trends and developments – notes that, “Some lenders reported that availability had been dampened
somewhat by expectations for house prices … Lenders commented that the outlook for house price
inflation and the housing market more generally had weakened in the fourth quarter of 2010.”
Lenders surveyed reported that losses due to defaults on mortgage payments had risen for the first
time since the second quarter of 2009 and are expected to rise further.
The survey also covers corporate or business lending, and indicated that lenders had increased
the availability of credit to smaller businesses over the last quarter of 2010 and they expect this
trend to continue over the next three months. This move has been supported by the government’s
encouragement to lend more to small firms, many of which have been hit by the recent economic
instability and do not have access to high levels of capital to ride out the crisis.
