Surge in mortgage availability
MORTGAGE availability has surged and is expected to continue rising this year in the clearest signal yet that efforts to free up credit are working.
The Bank of England's latest survey of lenders revealed the availability of secured credit to households rose significantly in the final three months of 2012 – setting a new high since the survey began in 2007.
Banks and building societies also increased lending to borrowers with smaller deposits, and said they were planning to increase their maximum loan-to-values in what will come as a welcome move for those struggling to get on the housing ladder.
And the survey showed that banks and building societies expect to ramp up lending significantly in the first three months of 2013.
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The results will reassure policymakers that the Funding for Lending scheme (FLS) launched in August to boost the flow of credit to households and businesses is having an impact.
The report showed that lending to businesses is also improving, with the first increase in credit availability for a year.
But conditions remain tough for small firms, with banks only reporting a slight increase in lending to this sector and demand actually falling from small businesses.
Large and medium sized firms appear to be benefiting most from increased lending and cheaper rates, according to the Bank.
Lenders reported that the FLS was helping increase the availability of credit and lower borrowing rates, while increased competition in the sector was also playing a part.
The Bank and Treasury launched the FLS to unclog the flow of credit to households and businesses by offering lenders cheap finance on the condition they pass it on to borrowers.
For every £1 of borrowed money lent out, banks are able to access an extra £1 reduced-rate loan from the scheme.
Experts gave a cautious welcome to signs of improved credit supply in today's report amid concerns that conditions remain tight and demand is still subdued.
While mortgage availability has increased, some lenders are reporting moves to tighten their credit scoring.
Alan Clarke, at Scotiabank, added that the report also shows demand for mortgage availability is actually lower than it was in mid 2012.
"There has been an improvement, but I don't think that this is the stellar improvement that the language in the report hints at," he said.
Lenders are expected to continue tapping into the FLS this year, with Lloyds Banking Group announcing last month it had drawn down another £2 billion from the scheme, on top of an initial £1 billion.
But the Bank of England's first report on the performance of the FLS showed improvements were slow, with only three of the lenders that had used the scheme actually increasing net lending.
Net lending rose by £500 million across all six lenders that had signed up to the scheme between June and the end of September, despite £4.4 billion being drawn down.