Banks expect to hand out fewer low-deposit mortgages, loans and credit cards in the coming months as they signalled they were being more cautious amid the current economic climate, a new report suggests.
Credit card borrowers are also likely to be offered shorter periods of zero interest on balance transfer and purchase credit cards and will face stricter credit checks, according to the latest credit condition survey by the Bank of England.
Interest free terms on credit cards have been steadily rising since they were first introduced in 2000. Borrowers now able to get a bumper 43 months at 0 per cent interest using a balance transfer credit card or a 32 months for the best purchasing deal – the longest deals ever offered.
Cutting back lending: Britons with small deposits of just 10 per cent or less were the most likely to be affected by a reduction in mortgage lending
It comes as default rates on credit cards, loans and other forms of unsecured lending increased ‘significantly’ in the past three months and were expected to rise further in the next three months, according to the report.
However, bank losses from such defaults were unchanged in the second quarter and were expected to remain the same also in the third quarter, the report said.
The fast rise in unsecured consumer debt like loans and credit cards over the past couple of years has worried the Bank of England, which earlier this month warned this had now become the biggest threat to the UK economy.
It told banks to hold more capital to be better prepared to cushion a potential future shocks by reversing the cut in the their so-called ‘countercyclical capital buffer’ – a move it had made last year in the wake of Brexit.
Many organisations have voiced concerns that Britons may be over-borrowing to get by as the cost of living has increased quickly after last year’s Brexit referendum as a result of a weaker pound, but wages have remained flat.
There are also concerns that a potential rise in the base rate later this year could exacerbate the situation. The Bank has sent mixed signals about this and economists seem to agree that even if it hikes rate, it will only be a small increase.
Mortgage availability increased in the past three months, but it is set to fall in the next three
The report suggests that banks are being more cautious with their lending now, having tightened their credit-scoring criteria for granting credit cards and loans and expecting to restrict it further in the coming months.
And when it comes to mortgages, banks said availability to homebuyers had increased in the past three months, but this was going to fall slightly this quarter for those with small deposits of 25 per cent or less – particularly for those with 10 per cent or smaller deposits.
But Howard Archer, chief economic advisor to the EY ITEM Club said the Bank was likely to take ‘limited comfort’ from banks’ more cautious approach towards lending.
Credit card lending and loans diminished in the past three months and will keep falling in the coming months, banks said
‘The Bank of England will likely see the report as indicating that lenders are moving in the right direction in their lending to consumers, but that pressure must be maintained on banks to act responsibly especially given the weakened economic outlook and squeeze on consumers’ finances,’ he said.
The report also looked at corporate lending, which demand from small and medium firms increasing significantly, while demand from large companies having fallen sharply last quarter and expected to do the same in the current one.
Demand for loans from small businesses is expected to fall back in the coming three months, while no change is anticipated for medium-sized businesses.
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS