UK Credit conditions set to loosen slightly

Credit conditions in Britain look set to ease slightly over the next three months, with banks keener to offer mortgages, even to borrowers with small deposits, a survey by the Bank of England showed on Thursday.

The central bank's quarterly credit conditions survey showed lenders increased the availability of home loans to those with deposits of less than 25 percent of a property's value in the first three months of the year.

Despite weak prospects for house prices, they expected to continue doing so over the next three months, as well as easing some restrictions based on income multiples.

That will be good news for first-time homebuyers who have struggled to get loans over the past few years.

"Lenders expected that they would continue to increase availability to borrowers with high loan-to-value ratios over the next three months, as well as increase maximum loan-to-value ratios a little," the survey said.

Figures from the Nationwide building society earlier on Thursday showed house prices rose unexpectedly in March for a second consecutive month. However, prices were broadly flat on an annual basis and many economists expect the market to remain subdued.

Lenders reported that defaults on home loans had increased unexpectedly in the first quarter and were expected to rise again in the next three months.

Record low interest rates in Britain have allowed banks to rebuild profit margins on lending after the chaos of the financial crisis. But they are worried default rates will rise once the Bank of England starts tightening monetary policy.

"Lenders expressed concerns over the potential impact of increases in the Bank Rate on default rates," the survey noted.

Banks reported that they expected a small increase in the availability of credit to corporates over the next three months, although they noted that tighter wholesale funding conditions could restrict credit to small companies.

Source: Reuters, by By Peter Griffiths and Christina Fincher