The credit crunch is at last starting to lose a little of its grip, though it remains tight and lenders expect to ease it only marginally in the coming months.
The Bank of England’s latest quarterly credit conditions survey found yesterday that banks and building societies actually tightened their terms for mortgages during the first three months of this year due to a reluctance to take on new risks and falling house prices.
Demand for mortgages declined, too, though by less than lenders had expected.
In the second quarter, though, lenders expect to make credit more freely available to both households and businesses.
“The economic outlook was no longer expected to be a factor bearing down on credit availability,” the Bank’s report said.
“Improvements in the cost and availability of funds were expected to support increased credit availability over the next three months.
“Some lenders commented that they had not had enough time to assess the full impact on future lending of recently announced Government schemes to support the banking sector.”
Despite the Bank’s interest rate cuts, the cost of borrowing has been rising this year as lenders widened their margins, a process they expect to continue, at least in their corporate lending.
“The message from this survey is mixed, with improving expectations as regards the availability of lending being accompanied by an anticipated generalised tightening of lending criteria,” said Richard McGuire, fixed income strategist at RBC Capital Markets.
“It would appear that while lenders’ ability to lend is improving, their willingness continues to diminish.”
Howard Archer, at IHS Global Insight, said: “The Bank of England survey suggests that the various policy measures undertaken by both the central bank and the Government to boost bank lending are starting to have a beneficial impact and it raises hopes that credit conditions will increasingly become less of a constraint on economic activity over the coming months.
“This is critical to recovery prospects. Hopefully, the Bank of England’s quantitative easing programme will further improve matters.”
The banks have been coming under increasing pressure from the Government to improve their lending levels, as it pumps hundreds of billions of pounds into supporting the sector.
Lloyds Banking Group and Royal Bank of Scotland have pledged to lend £14?billion and £25?billion respectively during the coming year as part of their participation in the Government’s asset protection scheme.
But even if lending does increase, it is unlikely to have a big impact on the property market unless banks also relax their lending criteria.