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Bank of England warns of borrowing pressure

[ Posted March 30th, 2012 ]

The Bank of England is warning mortgage borrowers that they soon may be hit with more problems a loan charges are expected to increase, lending criteria is expected to tighten even more, mortgage rates are set to increase, and the amount of credit given to average households is expected to be decreased.  Most lenders already are making plans that include releasing less credit to households over the next three months as the lending market tightens which will likely impede further economic recovery as the property market begins to flatten again.

The Quarterly credit conditions survey from the Bank of England reported that lenders will reduce the amount of credit they offer to households at the same time that they will increase their mortgage rates making it harder for anyone to purchase a new home, especially first time home buyer.  At the same time, the Bank of England also stated that over first quarter of the year there was a surprising decrease in the amount of mortgage approvals that were issued even though lending terms at the start of 2012 were still considered to be ideal until about March.

The credit conditions survey reported that approvals fell to just under 49,000 which is the lowest that they have been in the past eight months.  This prompted many mortgage brokers and market analysts to compare February of this year to the start of the 2008 bank crisis as the same conditions and trends are reappearing.  The one main difference is that SMEs and large companies have not seen such a large fluctuation in their mortgage rates and the amount of credit open to companies has remained the same prior to March.  However, most experts had expected to see the amount of lending available go up due to Government calls for better SME bank funding.

Lending data from the Bank of England reports that businesses were able to pay back about four billion of what they took out in new loans over the first quarter of the year which comes out to be a 7.9% average three month contraction.  This is another sharp decrease, and one that has not been seen since autumn of 2009.  In addition, commercial lending is expected to decrease over the next quarter although the buy to let market is expected to remain steady.

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