Tougher to get a mortgage as lending conditions squeezed | Business News

Borrowers could find it harder to obtain mortgages and other loans over coming months even as demand for them recovers, according to a Bank of England survey.

Lenders said the availability of both secured credit – such as home loans – and unsecured credit – such as credit cards and personal loans – was set to decrease over the three months to August.

It could mean a hoped-for recovery in household spending – badly damaged by the coronavirus crisis – is at risk, according to one expert.

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Demand for mortgages and other loans fell in the three months to May – a period largely covered by the lockdown – according to the Bank of England’s quarterly credit conditions survey of banks and building societies.

But demand was expected to increase in the coming months.

Meanwhile the “spreads” on mortgages are expected to increase – in other words the sharp cut in the Bank of England interest rate from 0.75% to 0.1% is not being passed on to borrowers.

At the same time, the length of interest-free periods on credit cards has fallen and is expected to continue falling, the survey found.

For businesses, the demand for loans has increased sharply and the availability of funds has been boosted by government-backed schemes designed to help firms through the coronavirus crisis.

But for all types of borrowing there was an increase in defaults – loans going sour.

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Chris Hare, senior economist at HSBC, said tightening availability of mortgages might hold back an improvement in the housing market despite the stamp duty holiday announced last week by Chancellor Rishi Sunak.

He added that while demand for these and credit card spending were expected to pick up again – from very low levels – the UK’s recovery path would be at risk unless households stop squirrelling away so much in savings as many have been.

“Overall, the Bank of England will probably be cheered by conditions faced by businesses, but credit-related risks to the household spending recovery are apparent,” Mr Hare said.

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