Mortgages and credit card lending set to plunge

Paying Staff

Demand for mortgages and credit card lending is expected to fall in the second quarter as the economy suffers a sharp fall in output, the Bank of England has forecast.

In its quarterly credit conditions survey, the Bank also found that lenders were planning to scale back the availability of such loans. The survey was conducted between March 6 and March 20, just before the government imposed stringent social distancing measures.

A net balance of -71 per cent of lenders said that they expected demand for mortgages to rise in the coming months, while -23 per cent anticipated that they would be issuing more loans. The figures are in line with the fall recorded during the final quarter of 2007, when the global financial crisis was starting to take hold.

Hansen Lu, a property specialist at Capital Economics, the consultancy, said: “Mortgage availability is set to collapse in the second quarter. Part of that will reflect limitations caused by physical distancing measures due to the coronavirus.

“Yet broader concerns about the economy, house prices and shrinking risk appetites may have more lasting effects on lending availability.”

Expectations also fell for unsecured lending, which includes credit cards. A net balance of -26 per cent of lenders said that they were likely to issue more credit, while -4.9 per cent reported greater demand.

Lenders blamed the fall in household credit on concerns about the economic outlook, lower house price expectations and reduced appetite for risk.

While household lending is expected to fall, lending to businesses is likely to rise. The balance of lenders expecting to increase credit to the corporate sector rose from 0.8 per cent to 28 per cent. This is the highest figure since the third quarter of 2009.

Businesses of all sizes are expected to benefit, even though lenders are pessimistic about their ability to keep up with repayments. A net balance of 72.2 per cent of lenders expect default rates on loans to small businesses to rise over the next three months.

Howard Archer, chief economic adviser to the EY Item Club, the forecasting group, said that the survey offered “encouragement for small and medium-sized businesses”.

A balance of 39 per cent of lenders expect to increase the availability of loans to small businesses and 8.6 per cent expect to approve more loans.