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.

Life and Style
tech
Sport
Farah returns to the track with something to prove
Commonwealth games
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
PROMOTED VIDEO
Sport
Shinji Kagawa and Reece James celebrate after the latter scores in Manchester United's 7-0 victory over LA Galaxy
football
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
Life and Style
fashion Designs are part of feminist art project by a British student
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
News
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
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.

iJobs Job Widget
iJobs Money & Business

Test Lead - Financial Reporting - Banking - London

£350 - £400 per day: Orgtel: Test Lead, London, Banking, Financial Reporting, ...

Business Analyst, Retail Bank, £375-400p/d

£375 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

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 -...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game