BOE Says Mortgage Availability Rises ‘Significantly’ on FLS

U.K. lenders increased the availability of mortgages and company loans “significantly” in the fourth quarter as the Bank of England’s credit-boosting program began to take effect.

An index of the availability of secured loans to households rose to 26.2 from 21.9 in the third quarter, the Bank of England said in its quarterly Credit Conditions Survey in London today. A measure for corporate loans jumped to 29.4 from minus 5.5. Both are at the highest level since the survey began in the second quarter of 2007. Availability is expected to increase again this quarter.

“Lenders noted that the Funding for Lending Scheme had been an important factor behind this increase, consistent with a reported easing in wholesale funding conditions, pushing up significantly on credit availability,” the Bank of England said. “Market share objectives had also contributed significantly to the increase.”

The central bank is counting on its FLS to stoke the economy by giving banks access to cheaper finance in return for increasing credit. Today’s report showed mortgage demand rose in the fourth quarter, as did demand for credit from medium-sized firms, while spreads on home loans tightened “significantly.”

The survey “provides further room for optimism that the FLS, along with a general reduction in market tensions, is facilitating an improvement in the availability of lending,” said David Tinsley, an economist at BNP Paribas in London.

Default Rates

The BOE report showed that largest increase in corporate credit availability in the fourth quarter was for large and medium-sized companies, while there was only a “slight increase” for small firms. Lenders also reported a reduction in demand from small companies.

The central bank said that defaults on mortgages fell in the three months through December, though losses from defaults rose “slightly.” Both defaults and losses were expected to remain unchanged in the first three months of 2013. For companies, lenders reported an increase in default rates in the fourth quarter and rates were expected to rise “slightly further” this quarter.

Spreads on loans to large and medium-sized companies tightened significantly in the fourth quarter and a further tightening is expected this quarter, according to the survey. Spreads for smaller companies were “broadly unchanged” in the past three months, and no tightening is foreseen this quarter. The BOE conducted the survey between Nov. 20 and Dec. 11.

Separately today, Nationwide Building Society said U.K. house prices declined 0.1 percent last month and may fall “modestly” over 2013. An index of construction activity fell to 48.7 in December -- a six-month low -- from 49.3.

Data from the central bank tomorrow may show mortgage approvals rose to 54,000 in November, according to the median forecast of 17 economists in a Bloomberg News Survey. While that would be the most since January, approvals are still only about half the monthly average of 103,000 in the decade to 2007 before the financial crisis struck.

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