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Mortgage lending criteria set to get tougher

Friday, 6 January 2012 11:53 AM

Banks expect to tighten their mortgage lending criteria in 2012 despite an increase in credit availability, according to the Bank of England's latest credit conditions survey.

The survey said the increase in secured credit was likely to be concentrated on borrowers with high loan to value ratios, including the new scheme being launched with housebuilders.

However, lenders expected credit scoring criteria for granting loan applications to be tightened in the first quarter of the year.

And they said the proportion of loan applications was likely to fall as they revised down their expectations for households' disposable incomes and therefore the affordability of taking out new secured loans.

Looking back at the final quarter of 2011, lenders said overall demand for secured credit for house purchase had fallen. This reflected lower demand for prime lending as buyers were unable to raise a big enough deposit and also the increased economic uncertainty.

Demand for buy-to-let loans rose for the sixth consecutive quarter although it is expected to fall in the first quarter of 2012.

Although the default rate on secured loans is expected to fall further in the first quarter, banks losses given default are rising. The survey notes that: "Some lenders noted the depressed housing market as a factor adversely impact lenders' ability to recover any losses."

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