The credit crunch is losing some of its grip on mortgages and bank loans to businesses, but the squeeze on credit cards and other unsecured lending remains as tight as ever.
The Bank of England’s quarterly survey of credit conditions showed a small increase in money available for mortgages during the three months to June, although lack of demand for re-mortgages fell further.
One unexpected finding was that lenders expect to have more money for home-buyer seeking to borrow more than 75 per cent of the value of their property has stopped falling. With this in mind they anticipate slightly less demanding credit scoring for home-buyers who apply for relatively high loan-to-value mortgages.
The Bank said that though the economic outlook, risk-aversion and falling house prices continued to bear down on the availability of credit, the impact was less than in previous surveys.
But Vicky Redwood, at Capital Economics, said: “While lenders may be saying that they intend to make more credit available, there have been few signs yet that they are actually doing so. Lending spreads have been increasing, deposit requirements on new mortgages remain high and lending growth itself has actually been slowing.”
At the British Chambers of Commerce, David Frost, director general, noted that lending to businesses had failed to increase by as much as expected.
“This is particularly concerning news considering the pivotal role businesses will play in driving the UK out of recession,” he said. “If the banks do not grasp the nettle and start lending effectively to the private sector they will simply be playing a part in prolonging this downturn. Banks have a responsibility not just to lend but to lend to the wealth-creating sectors of the economy.”
Separately, the latest recruit to the Bank’s interest-setting monetary policy committee warned the Commons Treasury committee that any signs of a rapid “V-shaped” recovery were likely to prove a false dawn.
“The banking sector is on life support and the ability of banks to lend is curtailed,” David Miles said. “So the prospect of a rapid return to growth does not seem a highly probable outcome. But there are reasons for thinking the period of most rapid declines of output are behind us.”
At the same time, Tim Besley, once among the sternest, high-interest-rate “hawks” on the committee, which he leaves in August, said it was too soon to judge whether the Bank’s “quantitative easing” was working, let alone discuss an exit strategy to withdraw it.
“A definite assessment right now would certainly be premature,” he said. “There is no sense in which there is a specific timing discussion. It is important not to think of this as a discrete event in that suddenly someone will say ‘We are in the exit strategy, folks’.
“I think it will just be that there will be a series of policy responses that happen at the time and they will be whatever is considered appropriate.”