BoE reports rise in secured credit availability to households

Banks and building societies have reported that the availability of secured credit to households increased in the three months to the end of May, new data from the Bank of England (BoE) has revealed.

The BoE’s latest Credit Conditions Survey indicated that lenders are also expecting the availability of secured credit to increase further over the next three months, to the end of August.

The quarterly Credit Conditions Survey – which covers secured and unsecured lending to households, as well as lending to non-financial corporations, small businesses, and to non-bank financial firms – was conducted between 1 June 18 June. Lenders were asked to report changes in the period between March and the end of May, as well as any expected changes between June and the end of August.

More findings indicated that demand for secured lending for both house purchase and remortgaging increased in Q2. Demand for remortgaging is expected to increase further in Q3, although demand for secured lending for house purchase is expected to decrease over the next quarter.

Overall spreads on secured lending to households, relative to the BoE’s 0.1% base rate or the appropriate swap rate, narrowed in Q2, and are also expected to narrow further in Q3, the survey revealed. Lenders also reported that overall unsecured lending spreads narrowed slightly in Q2, and were expected to remain unchanged in Q3.

The survey also measured defaults, revealing the net percentage balance for changes in default rates on secured loans to households remained unchanged in Q2, but was expected to increase in Q3. Furthermore, the net percentage balance for changes in default rates for total unsecured lending decreased slightly in Q2, but was expected to increase in Q3.

Commenting on the BoE’s data, Phoebus Software sales and marketing director, Richard Pike, said: “As interesting as this latest Credit Conditions Survey is, the market is changing almost daily. What banks and building societies were seeing in the three months to the end of May is unlikely to reflect what is happening today, or even what is likely to happen tomorrow.
 
“The upshot is that this is an unpredictable market and until the end of at least Q3, it is likely to remain so. By then furlough will have ended and the vast majority of the population will be fully immunised. Many people will be taking stock as we ‘return to normal’, looking at their finances and, for many, quality of life. The question now is one of long-term confidence.”

Coreco managing director, Andrew Montlake, added: “It's curious that banks expect defaults to increase during the third quarter and yet at the same time expect supply to also increase, as they engage in a price war.

“Banks know that there are a lot of struggling borrowers out there but equally have to lend to meet their targets. It's a hugely delicate balancing act of lending while accepting that defaults are likely to nudge up.

“Though demand is likely to drop off between now and the end of August, we're not expecting a material fall as lifestyle changes triggered by the pandemic are driving transactions. Banks are expecting spreads to narrow once again in the third quarter, which is understandable given the current price war. Higher LTV products is where we're likely to see most competition in the months ahead.”

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