Mortgage and corporate loans finally rising, says BoE

Jan 4, 2013

Credit Conditions Survey shows positive trend - but one economist warns against over-reaction

THE Bank of England says money for mortgage lending and business loans sharply increased in the last three months of 2012, reaching levels not seen since it began the Credit Conditions Survey in 2007.

The Times reports that the news will reassure the government and the Bank that its Funding for Lending (FFL) scheme is gaining traction.

The results were a surprise to some analysts because last month it was reported that FFL had increased lending by only £496 million and three of the biggest participants - Lloyds, Santander and RBS - were repaid more in old loans than they extended in new agreements.

The survey was set up as the credit crunch started to bite and borrowers found it impossible to access funds.

Vicky Redwood, of Capital Economics, said the data provided further evidence that the FLS was having a positive impact, pointing to a 26 per cent net balance of lenders reporting a rise in mortgage availability over the past three months.

"This was an even higher balance than reported last quarter, which was already the highest since the survey began in 2007," she said. "For the first time the survey showed an improvement in the availability of credit to the corporate sector, too."

The Bank says that another positive sign was that the margin between what banks pay depositors and charge borrowers was significantly tightening. It also said it expects credit availability to continue to grow in the first quarter of this year.

One economist - Alan Clarke, of Scotiabank - worried that availability still was not translating into new loans and found an interesting analogy: "There is lots of supply of chocolate and confectionary in the Clarke household after Christmas, but I don¹t want to eat it and I don¹t want to give it to certain groups, ie the kids. There has been an improvement, but I don't think that this is the stellar improvement that the language in the report hints at."

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