Monday 7th July 2008
As part of its quarterly Credit Conditions report, the Bank of England has forecasted that the credit crunch is to get worse before it gets better.
The prediction is based on feedback collected from a number of industry practitioners at the end of May, which forms the basis of the report for the second quarter.
A threefold effect is currently tightening the availability of credit related to the housing market, the central bank notes.
Changes in lenders appetites for risk is one factor, while the evolving economic outlook and expectations for the housing market also have parts to play.
In addition to these elements, a lack of wholesale funding availability to the lenders themselves is also singled out as having reduced secured credit for consumers.
"Lenders expected these factors to contribute to the tightening in credit availability over the next three months," the Bank of England comments.
While some credit may remain available over the coming months, the bank notes that this is likely to be subject to tightened criteria as well.
Decreasing maximum loan-to-value ratios - the proportion of a propertys value which may be taken as a loan - are expected.
Scoring criteria is also likely to be made more rigorous, which could see some borrowers classed as sub-prime or near-prime who previously may have had freer access to products.
The findings could be seen as being based on more specific concerns than in the first quarter, when the Bank of England observed that expectations of tightened credit were the result of the "macroeconomic outlook", or a general feeling that the market as a whole could be entering rough financial waters.
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