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Bank survey predicts tighter mortgage market

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Date: Thursday 03 Apr 2008

LONDON (ShareCast) - The Bank of England's closely watched quarterly credit conditions survey has predicted mortgage availability could be even more restricted in the next three months, as the number of loan defaults rises and lenders cut back.

Some mortgage lenders, such as First Direct and the Co-Operative bank, have already halted temporarily new mortgage lending as potential borrowers swamp companies offering the best deals. Other lenders have raised either the deposit required or the rate of interest on mortgages to choke off demand.

Those looking for a home loan will have found little comfort in the Bank's survey, which found that lenders had reduced the availability of mortgages the quarter to mid-March and "expected a slightly larger reduction" over the next three months.

Some 43% more lenders interviews thought loan availability would tighten rather than fall over the next quarter, while a balance of plus 31% said they had cut lending rather than increase it the first three months of 2008.

Lenders also expect to restrict cutting other loans, especially non-secured advances such as credit cards and overdrafts, in the next three months.

The Bank added that its survey respondents also expect a rise in mortgage defaults, especially as there seems to be some doubt over the future of interest rates.

Most economists have predicted a series of cuts to ease the problems in the housing market, but Monetary Policy Committee member Paul Tucker suggested yesterday this was not a foregone conclusion.

In a speech, Tucker said that the risk of inflation meant he had not yet made up his mind to reduce rates at the Monetary Policy Committee meeting next Thursday.

"The tightening of credit conditions domestically and internationally makes it likely that aggregate demand will slow, with a risk that it will slow considerably,' he said, adding "My own vote at the April meeting will depend on all the data, some of it still to reach us."