U.K. lenders increased the availability of mortgages in the first quarter and expect a further improvement this quarter as they try to boost market share, the Bank of England said.
While the gain was less than in the fourth quarter, a further increase is seen this quarter, the Bank of England said in its Credit Conditions Survey in London today. Demand for home loans rose “slightly” in the first quarter and lenders forecast the fastest increase in almost four years in the current three-month period, it said. While credit availability for companies also improved in the first quarter, according to the survey, this was confined to large companies.
The central bank is counting on its Funding for Lending Scheme to stoke the economy by giving banks access to cheaper finance in return for increasing lending. Still, U.K. mortgage approvals fell to a five-month low in February and Nationwide Building Society said that the outlook for the housing market is “unusually uncertain.”
“The FLS was widely cited as a factor pushing down on bank funding costs and borrowing costs for households,” the BOE said today. “Lenders reported that market-share objectives had been the main contributor to the rise in availability, although an increased appetite for risk and improved wholesale funding conditions had also played a role.”
A separate report today showed construction shrank more than economists forecast in March. Markit Economics said its index of building rose to 47.2 from 46.8 in February. That’s below the reading of 48 estimated in a Bloomberg News survey.
The pound erased its advance against the dollar after the report. It traded at $1.5101 as of 9:36 a.m. in London, little changed from yesterday.
According to the BOE survey, an index of the availability of secured loans to households was at 17 after 26.2 in the fourth quarter. A gauge on the outlook for availability this quarter was at 15.8. The measure on the outlook for mortgage demand was at 30.4, which would be the highest since the third quarter of 2009. The BOE’s survey of banks was conducted from Feb. 8 to March 1.
The FLS is aimed at reducing the cost of borrowing and is the latest in a series of measures introduced to help the economy recover. The BOE said today that spreads on mortgage loans above the central bank’s benchmark rate or the appropriate swap rate tightened “significantly” in the first quarter, reflecting “the pass-through of cheaper funding costs, as well as increased competition.” Lenders forecast another significant tightening in spreads this quarter.
For companies, small and medium sized firms reported “little change” in the availability of credit in the first quarter. While overall corporate credit availability is expected to be little changed this quarter, it may increase for large companies. Demand for credit from smaller companies fell in the last quarter, though is expected to increase in the current period.
With the economy struggling to recovery, the BOE is maintaining stimulus for the economy. The Monetary Policy Committee will announce its monthly decision at noon in London tomorrow and will keep the target of its bond-purchase plan unchanged at 375 billion pounds ($567 billion), according to the median of 37 economists in a Bloomberg New survey. Three economists in the poll predict a 25 billion-pound expansion.
The BOE wants banks to strengthen their resilience to shocks so they can lend more freely to companies and consumers.
While it told lenders on March 27 to raise 25 billion pounds of additional capital, it said it doesn’t want this to restrict lending. Still, the move prompted some government ministers to warn policy makers from pushing banks to strengthen their balance sheets too quickly.