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Credit availability improves for those with small deposits

Bank of England BoE Bank 480

Lenders have reported a marked increase in credit availability to borrowers with less than a 25 per cent deposit in the first quarter and expect this to continue into the second quarter.

According to the Bank of England’s latest credit conditions survey, lenders reported an overall increased availability of secured credit to households for the third consecutive quarter. The BoE says the “rise in credit availability was reported to be a little more marked for borrowers with loan-to-value ratios above 75 per cent”.

When asked how the availability of secured credit had changed in the first quarter, lenders reported a positive net balance of 8.9 for borrowers with a deposit larger than 25 per cent and a positive net balance of 18.7 for those with a deposit smaller than 25 per cent. A positive balance indicates increased availability.

Moreover, the average credit quality of new lending was reported to have fallen – negative net balance of 15.6 – and maximum LTV and loan-to-income ratios were reported to have increased “slightly”. The average credit scoring criteria was expected to deteriorate further in the second quarter – negative net balance of 7.8.

Lenders cited “market share objectives” as the main driver of increased credit availability in Q1, along with an increased appetite for risk and improved wholesale funding conditions.

In the second quarter, lenders expect credit conditions to continue to improve across all LTV ratios, with positive net balances of 8.2 and 9.1 reported for those with LTV ratios of 75 per cent or less and 75 per cent or more, respectively.

The BoE’s survey says: “The availability of secured credit was expected to increase further in 2012 Q2 across all LTV ratios, again driven by market share objectives. Average credit quality was expected to deteriorate a little further.”

Lenders also reported that overall spreads on secured lending to households – relative to base rate or swaps – tightened “significantly” again in Q1, citing a pass-through of cheaper funding costs and increased competition among lenders.

Spreads were expected to tighten further – meaning mortgage rates will fall – with a positive net balance of 51.8 expecting this for prime lending and 25.7 for buy-to-let lending.

Demand for secured lending for house purchase was reported to have risen slightly in Q1 – positive balances of 6.4 and 7.6 for prime and buy-to-let lending, respectively. However, lenders expect demand to jump in the second quarter, with the survey showing positive net balances of 30.8 and 22.8 for prime and buy-to-let lending, respectively.


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