Hurrah! The crunch on credit is finally starting to ease for lenders - but what does this mean for you and me?
Last week a whole host of official statistics and reports were released - with some getting a lot more press than others. The biggest story was the Government's White Paper on improving the credit card industry, and the Office of Fair Trading subsequently announced it would look into the high costs of credit. For more details, read A huge victory for British borrowers!
But on the same day, The Bank of England also published its equity withdrawal statistics which made predictable reading - essentially we are borrowing less against the value of our properties, and are instead paying down our mortgage debt while rates are low - a good or bad thing depending on your perspective.
But hidden among all these announcements was the Bank of England's quarterly Credit Conditions Survey. It might not sound like a riveting read, but among the doom and gloom there was a ray of hope and an indication that we are beginning to experience the end of the credit crunch.
What's the good news?
Over the past three months, lenders have increased the availability of secured credit (mortgages and secured loans) to households - the first time since 2007. According to the Bank of England, this is because lenders have had increased availability of funds at lower costs. The increase also partly reflects the lending commitments made to the Government as a condition of lenders being allowed to participate in the Asset Protection Scheme.
But more importantly, lenders expect a further increase in the availability of secured credit to households in the next three months.
In other words, the credit markets have been slightly less crunched recently and this trend is expected to continue, resulting in more mortgages.
Even better, demand for mortgage lending for house purchases was reported to have increased in the last quarter. However, demand for remortgages has dropped even further. This is unsurprising given the low standard variable rates on offer combined with the fact that falling property prices prevent many borrowers from remortgaging to release equity.
Even more good news
Lenders also expect a general easing in 'non-price terms' in the next three months. This means that lending criteria could become slightly more flexible - indeed lenders are expecting an increase in maximum loan-to-values (LTVs), plus a slight easing in credit scoring criteria in the next three months. So there should be more mortgages for those with smaller deposits.
Other findings
The survey also found that unsecured credit availability (personal loans, credit cards) has reduced over the last three months and is expected to fall further in the coming three months.
Meanwhile, corporate credit availability has increased, and is expected to rise further. Default rates on secured and unsecured lending to households and companies have also risen over the last three months and, again, are expected to increase further.
End in sight?
So does the report suggest that the end is in sight? Perhaps it's not quite time to be cracking open the champagne - we are still in a recession, after all - but I think there are really positive signs in there, especially when backed up by rising house prices (Nationwide has now recorded the first three month on three month rise since December 2007), and there are widespread reports of increased buyer interest.
The Council of Mortgage Lenders (CML) reckons the Credit Conditions Survey offers positive news for the mortgage market - particularly since lenders expect to expand their access to higher loan-to-value and loan-to-income ratios.
However, the CML points out that unfortunately not all lenders are in the same position. Some of the increase in lending capacity is due to commitments made by some of the largest lenders signing up to the Asset Protection Scheme. But there has been a massive loss of capacity across other parts of the industry, which is unlikely to return in the short term.
And the trade body warns that a rapid return to pre-credit crunch lending volumes and products remains extremely unlikely.
About time?
According to the National Association of Estate Agents (NAEA), if the mortgage market does loosen up a bit it will be long awaited. At the moment, almost a quarter of people surveyed by the association have been unable to find a mortgage that they qualified for - and more than half said relaxed criteria and lower deposit requirements would increase the chance of them buying a property.
Estate agents have already called for the Government to pressure banks into lending.
In the meantime, the Credit Conditions Survey report offers consumers (and estate agents) hope that they will soon see the more relaxed lending criteria they so desperately want.
A greater choice of deals for all borrowers is certainly the first stage in the mortgage market and housing market recovery. Perhaps it is closer than we thought...
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