Banks warn on future lending

Banks made more credit available to households and small businesses this summer but have warned the eurozone crisis may hit future lending.

Lenders said there was a slight increase in the availability of credit to households in the third quarter of 2011, according to a survey by the Bank of England.

Credit conditions for large and medium sized businesses were stable, while there was a slight increase for small companies.

But banks warned "adverse wholesale funding conditions", most likely to be caused by the eurozone debt crisis, might constrain their ability to offer loans in the future.

Financial markets have come under increasing strain in recent months after banks became less willing to lend to one another because of fears about exposure to Greek debt.

And the eurozone debt crisis has also created a crisis of confidence among investors, reducing the amount of money they have pumped into financial markets.

The report said: "More recent discussions with some of the major lenders suggested that although these factors had not yet led to reduced credit availability, a period of sustained tight funding conditions could act to constrain their ability to extend loans going forward."

The survey also offered a ray of hope for the housing market, as it revealed that demand for prime mortgages - those which are viewed by banks as relatively safe - has increased for the first time since 2009, while demand for buy-to-let mortgages also showed a "substantial" rise.

PA