Fears over new mortgage squeeze, says Bank

Image caption The state of the credit market is judged in the survey

Lenders have warned that homebuyers could face a fresh squeeze on mortgages in the next three months, according to a Bank of England report.

The availability of mortgages has risen since the end of the credit crunch, but anticipated tightening of wholesale funding could reverse the trend.

However, the rate at which mortgage holders and businesses default on loans has fallen "unexpectedly".

The predictions were contained in the Bank's Credit Conditions survey.


Demand for new home loans fell slightly in the last three months, the survey found, even though availability rose.

"While the survey shows that costs of borrowing have eased over the last quarter, we think credit conditions have turned over the last three or four weeks," said Dougald Middleton, head of capital and debt advisory at Ernst and Young.

Jonathan Loynes, chief European economist at Capital Economics, said: "The Bank of England's latest credit conditions survey strikes a fairly downbeat tone, with banks expecting mortgage availability to decline over the next quarter."

Those who can offer a large deposit have been the homeowners who have benefited from the recent rise in mortgage availability, a separate survey by the financial information service Moneyfacts found.

Borrowers with a 40% deposit have seen a 10.6% increase in the number of new deals available in July compared with June, compared to a 2.8% fall for those with only a 15% deposit, Moneyfacts said.

"Rates continue to decline as lenders try and tempt borrowers off record low standard variable rates and on to new deals, so much so that the average two year fixed mortgage now stand at its lowest level in seven years," said Michelle Slade, of Moneyfacts.


However, the Bank's report said that the number of people wanting to remortgage had risen for the first time since the end of 2008.

Few people have been looking to remortgage in recent times, owing to the low cost of standard variable rates.

The drop in mortgage-holders defaulting on loans in the April-to-June period continues a trend seen with home loans since last year.

However, the Bank's Credit Conditions Survey said that the default rate was expected to remain unchanged in the third quarter of 2010.

Lenders warned that the rate could rise if the economic outlook worsened.

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