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."

Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
PROMOTED VIDEO
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
tv
Voices
voicesSiobhan Norton on why she eventually changed her mind
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
News
i100
Extras
indybest
Sport
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
Life and Style
tech
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

    PMO Analyst - London - Banking - £350 - £400

    £350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

    Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

    £300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

    Insight Analyst – Permanent – Up to £40k – North London

    £35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

    Test Lead - London - Investment Banking

    £475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

    Day In a Page

    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn