Lenders reported an increase in the overall availability of secured credit to households in the first quarter of 2013 according to the latest Bank of England Credit Conditions survey.
Lenders reported that market share objectives had been the main contributor to the rise in availability in 2013 Q1, although an increased appetite for risk and improved wholesale funding conditions had also played a role.
In the first ever Bank Liabilities Survey, lenders reported that the cost of raising funds in both retail and wholesale markets had fallen significantly in the first quarter.
The rise in credit availability was reported to be a little more marked for borrowers with loan to value ratios above 75%, compared with borrowers with an LTV of 75% or below.
Consistent with that, the average credit quality of new secured lending was reported to have fallen, and maximum LTV and loan to income ratios were reported to have increased slightly.
Credit scoring criteria were reported to be little changed and the proportion of applications approved fell slightly.
The survey also shows that availability of secured credit is expected to increase further in Q2 across LTV ratios, again driven by market share objectives. Average credit quality is expected to deteriorate a little further.
Lenders reported that overall spreads on secured lending rates to households — relative to Bank Rate or the relevant swap rate — tightened significantly again in Q1. Lenders commented that this tightening in part reflected the pass-through of cheaper funding costs, as well as increased competition among lenders.
The Funding for Lending Scheme was cited by many lenders as a factor pushing down on bank funding costs and, in turn, lending rates.
Lenders expect a further significant tightening in spreads over the next three months.
Demand for secured lending for house purchase was reported to have risen slightly in the first quarter following reported increases in the previous four surveys. The demand for secured lending is expected to increase significantly in Q2 for both prime lending and buy-to-let lending.
Lenders reported that default rates on secured loans to households were little changed in 2013 Q1. Many lenders commented that default rates were low and that loan performance over the past year had been better than expected.
The survey also found that the total amount of unsecured credit made available to households rose in the three months to the beginning of March, driven by small changes in market share objectives and appetite for risk. Credit availability is expected to rise further in the next quarter, driven by the same factors.
In 2013 Q1, credit scoring criteria for credit card lending were loosened and the proportion of loan applications approved increased significantly. In contrast, credit scoring criteria for other unsecured lending tightened, and the proportion of applications approved fell slightly.
Credit scoring criteria for both credit cards and other unsecured lending are expected to loosen in 2013 Q2.
Demand for total unsecured lending was reported to have been little changed in 2013 Q1, following a significant increase last quarter. Demand is expected to rise in Q2, reflecting a significant increase in demand for other unsecured lending and an increase in demand for credit card lending.
The performance of total unsecured loans improved a little in 2013 Q1: the default rate was reported to have fallen, while losses given default were little changed. Default rates are expected to fall a little further in 2013 Q2, but losses given default are expect to pick up slightly.