The latest bank of England Credit Conditions Survey suggested that the supply of credit for commercial property is likely to remain restricted, but for residential borrowers it is likely to contract again.
Commenting, Kelvin Davidson, property economist at Capital Economics, said: “Today’s survey contained mixed messages for the housing market. Lenders reported that mortgage availability increased moderately in Q2 (roughly in line with expectations from the previous survey), while lending spreads fell and maximum loan to value ratios increased. Default rates on secured loans also fell sharply in Q2.
“Less encouraging, however, was the fact that lenders expect the availability of mortgage credit to fall back over the next few months. This was related to concerns about the scope for defaults (and the scale of losses on defaulting loans) to rise next quarter and about the ability of lenders to access wholesale funding.
“On house prices, lenders expect further modest rises in Q3. That is consistent with the mildly positive expectations previously reported by the RICS and Nationwide. However, with mortgage availability set to falter, there must be significant doubts about whether those positive expectations for prices will be borne out.
“The message for the commercial property sector was similar – some good points, but also some less encouraging aspects. Looking ahead, lenders plan a modest increase in the availability of commercial property finance. Of course, it is important to note that in the (admittedly short) history of this survey, lenders expectations for any change in commercial property credit availability have tended to be too optimistic.
“Overall, the survey highlights that a return to more normal levels of lending remains a distant prospect and the risk that a renewed tightening in lending standards will reverse recent price gains appears higher in the residential than commercial market.”
