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Commercial Property News
Bank of England say lenders appetite further reduced and falling as recession looms in bid to halt inflation
The credit squeeze for consumers and businesses looks set to intensify as lenders brace for rising defaults and the economy slows, a survey by the Bank of England showed yesterday.
The findings are bound to heighten concern over the state of the economy following a raft of data showing a sharp housing market correction is already damaging consumer and corporate confidence.
"Lenders reported that their expectations for the housing market, the changing economic outlook and changes in their appetite for risk had contributed to the decline in credit availability," the bank's quarterly credit survey noted.
"Lenders expected these factors to contribute to the tightening in credit availability over the next three months."
The survey, conducted between May 27 and June 18, showed default rates on secured lending to households rose by more than anticipated in the second quarter and lenders expect a further increase in the coming months.
Lenders also expected corporate defaults to pick up and were ready to tighten loan terms further.
Analysts now believe that the MPC will leave rates on hold for the rest of the year. Vicky Redwood, at Capital Economics, said: "An interest rate cut is desperately needed to support the rapidly deteriorating economy. But inflationary pressures continue to tie the monetary policy committee's hands. The chances of an interest rate rise have receded significantly. But with a rate cut still some way off, the cost of keeping a lid on inflationary pressures now looks like a strong chance of a technical recession."
"An end to the credit crunch does not seem to be in sight if the Bank's second quarter credit conditions survey is anything to go by,"
"Overall, further evidence that the economy is heading for a nasty downturn."
The survey showed that 47% of lenders had cut mortgage availability in the three months to June, while 22% of banks expected further reductions soon. "Lenders reported that their expectations for the housing market, the changing economic outlook and change in their appetite for risk had contributed to the decline in credit availability," the survey noted.
Michael Coogan, at the Council of Mortgage Lenders, said: "Neither the cost nor the availability of wholesale funds has improved for lenders since the Bank of England launched its special liquidity scheme. This means that cost and availability to customers has not improved either. And this in turn means that consumers are now beginning to give up and demand is falling, with confidence in the housing market falling with it."
Figures this week show the services and manufacturing sectors are already contracting at their sharpest pace since 2001 while construction is in virtual free-fall.
Lenders reported unexpectedly large falls in demand for credit for mergers and acquisitions activity and capital investment, and from the commercial real estate sector.
The findings are bound to heighten concern over the state of the economy following a raft of data showing a sharp housing market correction is already damaging consumer and corporate confidence.
"Lenders reported that their expectations for the housing market, the changing economic outlook and changes in their appetite for risk had contributed to the decline in credit availability," the bank's quarterly credit survey noted.
"Lenders expected these factors to contribute to the tightening in credit availability over the next three months."
The survey, conducted between May 27 and June 18, showed default rates on secured lending to households rose by more than anticipated in the second quarter and lenders expect a further increase in the coming months.
Lenders also expected corporate defaults to pick up and were ready to tighten loan terms further.
Analysts now believe that the MPC will leave rates on hold for the rest of the year. Vicky Redwood, at Capital Economics, said: "An interest rate cut is desperately needed to support the rapidly deteriorating economy. But inflationary pressures continue to tie the monetary policy committee's hands. The chances of an interest rate rise have receded significantly. But with a rate cut still some way off, the cost of keeping a lid on inflationary pressures now looks like a strong chance of a technical recession."
"An end to the credit crunch does not seem to be in sight if the Bank's second quarter credit conditions survey is anything to go by,"
"Overall, further evidence that the economy is heading for a nasty downturn."
The survey showed that 47% of lenders had cut mortgage availability in the three months to June, while 22% of banks expected further reductions soon. "Lenders reported that their expectations for the housing market, the changing economic outlook and change in their appetite for risk had contributed to the decline in credit availability," the survey noted.
Michael Coogan, at the Council of Mortgage Lenders, said: "Neither the cost nor the availability of wholesale funds has improved for lenders since the Bank of England launched its special liquidity scheme. This means that cost and availability to customers has not improved either. And this in turn means that consumers are now beginning to give up and demand is falling, with confidence in the housing market falling with it."
Figures this week show the services and manufacturing sectors are already contracting at their sharpest pace since 2001 while construction is in virtual free-fall.
Lenders reported unexpectedly large falls in demand for credit for mergers and acquisitions activity and capital investment, and from the commercial real estate sector.
Thu, 3rd Jul 2008