Mortgage squeeze is tightening, Bank warns

Britain's mortgage squeeze is getting worse, the Bank of England warned yesterday as concerns about a fresh housing market slump continue.

The Bank's Credit Conditions survey said that banks' lending policies combined with the current economic conditions will continue to make it extremely tough for first-time buyers to secure mortgages over the next three months. The survey, which covers all the major lenders, said credit-scoring criteria, used to decide whether an applicant is worthy of a mortgage, have tightened up.

In a further sign that the supply of credit to the economy will be severely limited over the coming months, Paul Fisher, a member of the Bank's Monetary Policy Committee, warned that the "special liquidity scheme" for banks will not be extended when it expires at the end of 2012.

The scheme is important because it has provided funding to banks, in particular troubled banks such as Lloyds and Royal Bank of Scotland, which dried up from other sources during the financial crisis.

Analysts are worried about how those banks will replace the funding given that wholesale lending markets remain torpid and prone to seize up if sentiment takes a turn for the worse over issues such as Europe's sovereign debt crisis.

In his speech, Mr Fisher said that credit flow to Britain's economy remains impaired and could take years to fully recover, despite politicians exhortations to banks to lend and back an economic recovery.

The Bank, along with counterparts in Europe and beyond, nonetheless wants to stop banks using it as a crutch. "It [the scheme] will not be extended or replaced," Mr Fisher said. "After three years of large-scale liquidity support the Bank expects each institution to be able to fund itself through normal market mechanisms."

The state of the housing market is increasingly worrying policymakers. A continuing flow of data suggests that the recovery in prices that has been seen since they hit a nadir during the financial crisis has come to an end and is now moving into reverse. Confidence in the housing market feeds through into consumers' spending decisions and their sentiment is already weak owing to the forthcoming spending cuts and tax rises, which the Coalition Government plans to use to begin reining in Britain's budget deficit.

The Bank's credit report says that many lenders are predicting that the loan approval rate will fall in the fourth quarter (October-December), the first time this has happened since early in 2009. The 95 per cent mortgage rates required by many first-time buyers remain all but impossible to find – last week the Skipton Building Society withdrew its offering.

Many big lenders require deposits of 15 per cent, or even 20 per cent, of the value of a new house. The recent data on house prices has been contradictory, but most measures show either that prices are falling, or that they are poised to fall.

More positively, the amount of secured credit available to home owners actually rose in the past quarter. Some lenders have also indicated that there has an increase in credit for small businesses, according to the Bank's survey. Despite this, demand for home loans and credit card lending among householders dipped during the last quarter, though so did the proportion of people defaulting on credit.

The survey came a day after the Bank's lending figures showed UK consumers repaid more unsecured debt than they took out in new loans in August. Net consumer credit – including credit card borrowing, overdrafts and personal loans – fell by £120m, the biggest drop since November 2009.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea