Flow of home loans will shrink again, says Bank

In a further blow to hopes that housing prices may yet avoid a "double dip", the Bank of England has said that the supply of mortgage funding over the next three months is expected to shrink, the first such decline since the end of 2008. More ominously still, the Bank added that the demand for mortgages has also weakened over the second quarter of this year.

It comes after the Bank reported weaker-than-expected mortgage approvals trends earlier this week – May saw just £1.2bn of net funds advanced for house purchases, compared with a pre-crisis average of over £8bn per month. The Nationwide house price index confirmed the slowdown, with a minimal 0.1 per cent rise in prices in June.

On the reduction in the number of people in the property market, a trend also noted by the Royal Institution of Chartered Surveyors (Rics), the Bank said: "Lenders had expected demand to increase in the past three months, as the temporary effects from factors such as cold weather and the ending of the stamp duty holiday waned.

"But, for some, that anticipated rebound in demand had not materialised. To explain the weakness in demand, those lenders cited continued uncertainty about the outlook for interest rates, employment and the macro economy more generally.

"Demand for secured lending for remortgaging was reported to have risen in the second quarter, for the first time since the end of 2008. Lenders were not anticipating further increases in remortgaging demand, given that many existing customers were borrowing at low standard variable rates."

Well-publicised problems for the banks in refinancing their balance sheets and replacing official support with fresh deposits, wholesale markets and securitisations point to a contraction in lending over the next few months at least. The Bank said: "Lenders expected the availability of secured credit to fall back in the next three months; in part reflecting expectations that wholesale funding markets might tighten in that period."

However, credit availability for firms is expected to improve in the coming three months, albeit at a slower pace, and 20 per cent of the banks in the Bank of England survey expect a large increase in defaults next quarter. The Bank reported caution about the health of commercial real estate.

The major British banks face a £750bn refinancing challenge in 2011. Simon Rubinsohn, the chief economist at Rics, said: "This is broadly consistent with anecdotal reports suggesting that, although more finance is now available, large deposits are still required to access it.

"Against this backdrop, the likelihood is that the finance for the property market will continue to be in short supply for some time to come. The construction sector, with its need for development finance, will be particularly badly affected by this," he added.

Dougald Middleton, the head of debt advisory at Ernst and Young, said: "Deleveraging is a key theme for the corporate sector. But there is a looming issue around refinancing which will test the supply of credit, especially if banks deleverage. This is likely to drive an increase in defaults."

News
news
Arts and Entertainment
British author Helen Macdonald, pictured with Costa book of the year, 'H is for Hawk'
booksPanel hail Helen Macdonald's 'brilliantly written, muscular prose' in memoir of a grief-stricken daughter who became obsessed with training a goshawk
Sport
footballLive blog: Follow the action from the Capital One Cup semi-final
Life and Style
food + drink
PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Web Developer - PHP

    £16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Guru Careers: In-House / Internal Recruiter

    £25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

    Day In a Page

    Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

    Greece elections

    In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
    Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

    Holocaust Memorial Day

    Nazi victims remembered as spectre of prejudice reappears over Europe
    Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

    Homeless Veterans appeal

    Homeless in Wales can find inspiration from Daniel’s story
    Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

    Front National family feud?

    Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
    Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

    Auschwitz liberation 70th anniversary

    Woman sent to three Nazi death camps describes surviving gas chamber
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century