Trends July 10

8/9/2019 Trends July 10

1/14

Trends in Lending

July 2010


2/14

BANK OF ENGLAND

Trends in LendingJuly 2010This publication presents the Bank of Englands assessment of the latest trends in lending to the

UK economy. It draws mainly on long-established official data sources, such as the existing

monetary and financial statistics collected by the Bank. These data are supplemented by the

results of a new data set, established by the Bank in late 2008, to provide more timely data

covering aspects of lending to the UK corporate and household sectors. (1)

The data set covers the major UK lenders:(2) Banco Santander, Barclays, HSBC, Lloyds BankingGroup, Nationwide and Royal Bank of Scotland. Together they accounted for around 65% of

the stock of lending to businesses, 45% of the stock of consumer credit, and 75% of the stock

of mortgage lending at the end of 2009. These data have provided a useful input to discussions

between the major UK lenders and Bank staff, giving staff a better understanding of the

business developments driving the figures and this intelligence is reflected in the report. The

report also draws on intelligence gathered by the Banks network of Agents and from market

contacts, as well as the results of other surveys. The focus of the report is on lending, but

broader credit market developments, such as those relating to trade credit or capital market

issuance, may be discussed where relevant.

The report covers official data up to May 2010, supplemented by data from the major UK

lenders and intelligence gathered up to end-June 2010. Unless stated otherwise, the data

reported cover lending in both sterling and foreign currency, expressed in sterling terms. The

major UK lenders data are provided to the Bank on a best endeavours basis. This, together

with their relative timeliness, means that they may not be as accurate as established data sets.

As a result, care is needed in interpreting the major UK lenders data presented in this report.

(1) For a fuller background please refer to the first edition of Trends in Lending available at:www.bankofengland.co.uk/publications/other/monetary/TrendsApril09.pdf.

(2) Membership of the group of major UK lenders is based on the provision of credit to UK-resident companies and individuals, regardlessof the country of ownership.

Proposed changes to Trends in Lending and theassociated data collection

The Bank of England launched Trends in Lending in April 2009 topresent the Banks assessment of the latest developments in lendingto the UK economy. It was launched at a time when the UK andworld economy had entered a deep downturn, with the banking andfinancial systems in a fragile state. This publication has beeninformed by a new data set, established by the Bank of England in late2008 to provide more timely data covering aspects of lending by themajor UK lenders to the corporate and household sectors.

This experience has highlighted the long-term value of some parts ofthe new data set. As a result, the Bank intends to migrate those partsof the new data collection that are seen to have enduring value to the

Banks regular monthly statistical forms, probably with a largernumber of reporting entities. The rest of the data collection, much ofwhich is already captured in the Banks existing statistics, wouldcease. Although the data will be published on a slightly less timelybasis as a result, the quality of these statistics should be improved forthe long term. The Bank of England also intends to reduce thefrequency of Trends in Lending from a monthly to a quarterlypublication.

A formal consultation with more details on the proposed changes willbe launched in an article in the next edition of Bankstats(1) to bepublished on 29 July 2010. The consultation will be open to all

interested parties.

(1) Available at www.bankofengland.co.uk/statistics/ms/articles.htm.


3/14

Executive summary 3

1 Lending to UK businesses 4

Box Recent trends in syndicated lending 8

2 Mortgage lending 9

3 Consumer credit 11

Glossary and other information 13

Contents


4/14

Executive summary 3

The flow of net lending to UK businesses remained negative in May, and was more so than in April. Credit availability to

businesses overall increased, but by less than lenders had expected, according to the Bank of Englands 2010 Q2 Credit Conditions

Survey. In recent discussions, most major UK lenders reported that spreads over reference rates on new lending to large

businesses had levelled off after recent declines. The Banks network of Agents reported that demand for credit remained muted.

In recent discussions, the major UK lenders expected corporate credit demand to remain subdued in coming months.

The flow of net mortgage lending by all UK-resident mortgage lenders increased in May. Gross mortgage approvals declined

slightly in June according to data from the major UK lenders. In the 2010 Q2 Credit Conditions Survey, a small balance of lenders

reported an increase in the amount of new secured credit made available to households, though a decline in the availability ofcredit was expected in the next three months. Demand for secured credit for house purchase was reported to have weakened in

2010 Q2. The major UK lenders expected demand for secured lending to remain muted.

Total net consumer credit flows turned positive again in May, though the annual growth rate in the stock of lending remained flat.

Spreads between effective interest rates and Bank Rate and Libor remain significantly wider than in late 2008, particularly on

interest-bearing credit cards, reflecting in part heightened credit risk. Respondents to the 2010 Q2 Credit Conditions Survey

reported credit scoring criteria had tightened for non credit card lending, though credit scoring for credit cards was reported to

have eased somewhat for the first time since 2008 Q2.

Executive summary


5/14

4 Trends in Lending July 2010

The flow of net lending to UK businesses remained negative in May, and was more so than in April.Credit availability to businesses overall increased, but by less than lenders had expected, accordingto the Bank of Englands 2010 Q2 Credit Conditions Survey. In recent discussions, most major UKlenders reported that spreads over reference rates on new lending to large businesses had levelledoff after recent declines. The Banks network of Agents reported that demand for credit remainedmuted. In recent discussions, the major UK lenders expected corporate credit demand to remainsubdued in coming months.

Recent lending dataOfficial data covering lending by all UK-resident banks and

building societies indicated that the stock of lending to

businesses contracted by 2.3 billion in May, more than the

reduction in April (Table 1.A). The annual rate of contraction

of the stock of loans eased slightly to 8.1%. Data from the

major UK lenders indicated that their net lending remained

weak in June.

Net capital market issuance by UK businesses was positive in

May, due to a pickup in net equity issuance (Chart 1.1).

Nonetheless, total net capital market issuance since the start

of the year has been lower than a year earlier. In recent

discussions, some lenders thought that many companies had

pre-funded themselves during 2009. Most lenders also

reported that the intensification of financial market volatility

since the start of May had affected bond issuance volumes in

the near term, though access to markets had opened up

somewhat in recent weeks. Net capital market issuance in

June was negative.

Previous editions of Trends in Lending have discussed howearlier capital market issuance had been used by some

businesses to repay bank debt. Consistent with a weakening of

capital market issuance relative to a year earlier, gross

repayments of bank debt by businesses to the major UK

lenders in 2010 Q2 were lower than a year earlier though rose

slightly on the quarter and remained higher than gross lending

(Chart 1.2).

The reported impact of the recent financial market volatility on

net capital issuance was also reflected in the responses of chief

financial officers (CFOs) to the Deloitte CFO Surveyconducted

in June. A majority of CFOs indicated that they did not view

equity issuance as an attractive source of external finance,

with the attractiveness of bond issuance also decreasing

somewhat on the quarter, though bond issuance remained the

1 Lending to UK businesses

Table 1.A Lending to UK businesses(a)

Averages 2010

2007 2008 2009 2009 2009Q3 Q4 Jan. Feb. Mar. Apr. May

Net monthly flow( billions) 7.3 3.8 -3.8 -7.1 -2.4 -6.7 0.3 -4.0 -1.1 -2.3

Three-monthannualised growthrate (per cent) 20.5 10.6 -7.5 -14.7 -6.0 -7.1 -7.1 -7.5 -3.6 -5.4

Twelve-monthgrowth rate (per cent) 16.7 17.5 -1.7 -4.7 -7.7 -9.3 -9.0 -9.5 -8.5 -8.1

(a) Lending by UK monetary financial institutions to PNFCs. Data cover lending in both sterling and foreigncurrency, expressed in sterling terms. Seasonally adjusted.

20

15

10

5

0

5

10

15

20

25

Jan. May Sep. Jan. May Sep. Jan. May Sep. Jan. May

billions

Commercial paper

Equity

Bonds

Loans

Total

2007 08 09 10

+

(a) Funds raised by PNFCs from UK monetary financial institutions and capital markets. Datacover funds raised in both sterling and foreign currency, expressed in sterling terms. Loansare seasonally adjusted. Bond, equity and commercial paper issuance are non seasonallyadjusted.

Chart 1.1 Net funds raised by UK businesses(a)


6/14

Section 1 Lending to UK businesses 5

most favoured source of finance (Chart 1.3). However, the

balance of CFOs who viewed bank borrowing as an attractive

source of funding increased in 2010 Q2 to a level close to that

for bond issuance. The major UK lenders reported that, as yet,

businesses were not presently seeking additional bank loans

as a substitute to capital market issuance to any materialextent. Looking forward, some major UK lenders expected

capital market issuance to be subdued for the rest of the year.

That was said to reflect, in part, weak expectations for

event-driven activity such as mergers and acquisitions, given

businesses uncertainty about the prospects for the global

macroeconomic recovery.

Corporate loan pricingThe total cost of bank finance to a company can be

decomposed into the fees charged by the bank to provide

facilities, the spread over a given reference rate (typicallythree-month Libor or Bank Rate) at which loans are offered,

and the prevailing level of that reference rate in the financial

markets.

Previous editions of Trends in Lending have discussed the

increase in spreads over reference rates on new facilities since

the start of the financial crisis. In part, elevated spreads on

lending to businesses are likely to reflect both heightened

credit risk and a repricing of risk. But they are also likely to

reflect the relatively high cost to banks of raising longer-term

funding. The major UK lenders reported that following the

marked reduction of liquidity in May, longer-term fundingmarkets had reopened through June for issuance by some

financial institutions, albeit at spreads that remained elevated.

Consistent with this, an indicative measure of spreads over

swap rates on sterling senior bank debt was broadly

unchanged over June, and higher than at the start of April

(Chart 1.4). Spreads on longer-term retail deposits such as

those over equivalent-maturity swap rates for three and

five-year fixed-rate bonds have also increased since April.

Spreads over reference rates on new lending continued to

narrow for large, and to a lesser extent, medium-sizedbusinesses in 2010 Q2 according to the Bank of Englands

Credit Conditions Survey(Chart 1.5). For large businesses, fees

and commissions were also reported to have fallen. Consistent

with these results for large businesses, a majority of

respondents in the Deloitte CFO Surveyfor 2010 Q2 reported a

slight improvement in the cost of credit, though indicated that

credit remained expensive. For smaller businesses, the Credit

Conditions Surveyindicated that spreads on lending were

broadly unchanged.

Looking forward, respondents to the Credit Conditions Survey

expected spreads, fees and commissions to be broadly

unchanged in the next three months for small and medium

companies, with a modest improvement in pricing for large

businesses, reflecting competitive pressures. In recent

0

5

10

15

20

25

30

35

40

45

50

Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2

billions

Gross lending Repayments

2009 200910 10

(a) Data from the major UK lenders for the flow of gross lending by and repayments to UKPNFCs. Data cover lending and repayments in both sterling and foreign currency, expressedin sterling terms. Non seasonally adjusted.

Chart 1.2 Gross lending and repayments(a)

60

40

20

0

20

40

60

80

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 09

Net percentage balances

08 10

Bond issuance

Equity issuance

Bank borrowing

+

Attractive

Una

ttractive

Source: Deloitte CFO Survey2010 Q2.

(a) Net percentage balances are calculated as the percentage of respondents who reported thateach source of funding was attractive less the percentage who reported that it wasunattractive. A positive balance indicates that a net balance of respondents find thatparticular source of funding attractive.

Chart 1.3 Deloitte CFO Survey: attractiveness ofdifferent sources of corporate funding(a)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan. Apr . July Oct. Jan. Apr . July Oct. Jan. Apr . July Oct. Jan. Apr .

Percentage points

2007 08 09 10

Indicative spread on

sterling senior bank debt(a)

Spread onthree-yearretail bonds(b)

Spread on five-yearretail bonds(b)

Sources: Bank of England and JPMorgan Chase & Co.

(a) Sterling only. Spreads over asset swaps. Series is composed of UK and non-UK debt. Dataare up to 30 June 2010.

(b) Sterling only. Spread over the relevant swap rate. The three-year and five-year retail bondrates are weighted averages of rates from banks and building societies within the Bank ofEnglands normal quoted rate sample with products meeting the specific criteria (seewww.bankofengland.co.uk/mfsd/iadb/notesiadb/household_int.htm). The series for thefive-year bond is not published for May 2010 as only two or fewer institutions in the sampleoffered products in that period.

Chart 1.4 Indicative spreads on senior bank debt andretail bonds


7/14


discussions, the majority of the major UK lenders reported that

loan pricing for larger corporates had levelled off after recent

declines and that some upward pressure on lending spreads

was expected if lenders funding costs remained elevated.

Supply and demandThe amount of lending and its price depend on the interaction

of demand and supply factors. Disentangling the separate

influences of changes in the supply of, and demand for, credit

is difficult though survey data can help.

Recent surveys have indicated some easing in credit

availability to businesses. In the 2010 Q2 Credit Conditions

Survey, credit availability was reported to have increased

across all firm sizes (Chart 1.5), though for corporates overall,

it increased by less than had been expected in the 2010 Q1

survey (Chart 1.6). Contacts of the Banks network of Agentsreported that the easing of credit availability was less for

smaller businesses than their larger counterparts. The Deloitte

CFO Surveyalso pointed to an increase in credit availability in

2010 Q2 for larger businesses, though a balance of

respondents continued to view credit as hard to obtain.

The increase in credit availability to corporates reported in

2010 Q2 is a continuation of the easing experienced over the

past year following the sharp tightening in availability at the

start of the financial crisis. The availability of secured credit to

households also increased a little over the past year but has

not eased by as much as for corporates (Chart 1.6). In recentdiscussions, a number of major UK lenders commented that

this difference could be attributed to the weakness of demand

for corporate loans, partly reflecting larger businesses use of

capital market finance and companies efforts to reduce

leverage. The resulting reduction in the stock of loans had

effectively increased banks capacity to undertake new lending

to corporates, given their internal targets. By contrast, the

stock of secured lending to households had continued to rise

and lenders were said to be closer to their desired levels of

lending.

The Banks Agents reported that demand for bank finance

remained muted, with many businesses continuing to pay

down bank debt and reduce their leverage. In some contrast,

demand for new credit facilities from small businesses was

reported by lenders to have increased in 2010 Q2 in the Credit

Conditions Survey(Chart 1.5) though demand from medium

and large businesses was reported to have fallen. In recent

discussions, the major UK lenders reported that demand for

new syndicated lending remained weak, with lending activity

driven mainly by businesses seeking to refinance maturing

facilities. The box on page 8 discusses developments in

syndicated lending over the past year in more detail.

Credit availability to businesses overall was expected to

increase in 2010 Q3 according to a small balance of lenders in

20

10

0

10

20

30

40

50

Small businesses

Medium PNFCs

Large PNFCs Net percentage balances

Availability Demand Spreads

Increase inavailability

Increase indemand

Cheapercredit

Decrease indemand

Decrease inavailability

Dearercredit

+

(a) Net percentages are calculated by weighting together the responses of those lenders whoanswered the question. The bars in the chart show the net percentage balance reported overthe three months to early June. The diamonds show the associated expectations for the nextthree months.

(b) In the first panel, a positive balance indicates that more credit is available. In the secondpanel, a positive balance indicates an increase in demand. In the third panel, a positivebalance indicates that spreads over reference rates have become narrower, such that all elsebeing equal, it is cheaper for corporates to borrow.

Chart 1.5 Credit Conditions Survey: credit conditionsacross firm sizes reported in the 2010 Q2 survey(a)(b)

60

50

40

30

20

10

0

10

20

30

40

50

Q2 Q2

2007 08 09 2007 08 09 2007 08 09

Corporate Households secured

Households unsecured


10 10 10

+

Q2 Q2Q2 Q2 Q2 Q2Q2 Q2 Q2 Q2

Increase

Decrease

(a) Net percentage balances are calculated by weighting together the responses of those lenders

who answered the question. The blue bars show the responses over the previous threemonths. The red diamonds show the expectations over the next three months. Expectationsbalances have been moved forward one quarter so that they can be compared with the actualoutturns in the following quarter.

(b) A positive balance indicates that more credit is available.

Chart 1.6 Credit Conditions Survey: availability ofcredit(a)(b)


8/14

Section 1 Lending to UK businesses 7

the Credit Conditions Survey(Chart 1.6). Lenders expected

loan demand from small and medium businesses to increase

over the next three months, with demand from large

businesses expected to fall. However, the major UK lenders

expected corporate credit demand to remain subdued in

coming months given concerns about the macroeconomicoutlook.


9/14


Recent trends in syndicated lending

Syndicated lending, whereby a group of banks or other lenders

jointly provide funds to a single borrower, is an important

source of large-sized loans, both through term loans for

project finance and leveraged buyouts and in the form ofrevolving credit for working capital. The August 2009 edition

of Trends in Lending provided an assessment of syndicated

lending to UK businesses following the start of the financial

crisis in 2007.(1) This box looks at trends in UK syndicated

lending over the past year.

Following a period of strong syndicated loan issuance, the flow

of syndicated lending to UK businesses declined markedly after

the start of the financial crisis (Chart A). Market contacts

reported that the decline in lending reflected weak loan

demand, given lower mergers and acquisitions (M&A) andleveraged buyout activity, and also the withdrawal of lenders

from the market, including foreign-owned lenders. Over the

past year, the value of new syndicated lending facilities

granted in the UK market has remained well below the values

seen in the period 200307. The value of gross new lending

facilities was also below an estimate of scheduled maturing

facilities, suggesting that the net value of new syndicated

lending over this period has been negative (Chart A).

In recent discussions, the major UK lenders reported that

demand for syndicated lending had remained subdued during

the past year due to muted M&A activity and weak demand

for investment by businesses, notwithstanding the pickup in

official data for business investment in 2010 Q1.

On the supply side, during the past year, the major UK lenders

have reported some increase in competition in the syndicated

loan market, consistent with the results of recent Bank of

Englands Credit Conditions Surveys, which indicated an easing

in credit availability to large companies. The major UK lenders

reported some renewed activity from foreign lenders in the UKmarket over this period.

Major UK lenders have reported that spreads relative to

reference rates on new syndicated lending have narrowed and

loan tenors on new corporate loans increased. Dealogic data

suggest that spreads on new investment-grade syndicated

lending have fallen from their peak in 2009 (Chart B). Lenders

reported that increased competition between banks and from

the availability of funds from the capital markets have played a

role in driving movements in loan spreads and tenors over the

year. However, lending was said to continue to be generally

transacted on a club basis, where deals are pre-arranged,

rather than underwritten and syndicated more widely.

Looking forward, demand for syndicated lending wasanticipated to remain subdued for the rest of the year,

reflecting expectations of muted M&A activity driven in part

by uncertainty around the macroeconomy and market

conditions. Lenders expected that activity in the syndicated

loan market would continue to be dominated by the

refinancing of existing loans. In some contrast, in the 2010 Q2

Deloitte CFO Survey, a balance of respondents expected M&A

activity to increase over the next year. Some lenders noted

that if funding market conditions remained difficult, there was

a risk that loan spreads could widen again.

0

50

100

150

200

250

300

350

2003 05 07 09

Basis points

Sources: Dealogic and Bank calculations.

(a) Investment grade is classified by Dealogic here as a rating of BBB or higher, with theclassification adjusted where ratings change over the life of the loan. If there is no ratingthen the loan spread on origination is used as the basis for classification, with any spread upto 250 basis points classified as investment grade.

(b) Average disclosed spreads over reference rates in the currency in which loan tranches aredenominated, weighted by tranche size. The share of investment-grade loans for whichspread details are disclosed varies over time. Non seasonally adjusted.

Chart B Average estimated spreads reported oninvestment-grade syndicated loans(a)(b)

15

10

5

0

5

10

15

20

25

30


Gross facilities granted non-resident banks(b)

Gross facilities granted UK-resident banks(b)

Scheduled maturities(c)

Gross facilities granted less scheduled maturities

billions, three-month moving average

2007 08 09 10

+

Sources: Dealogic and Bank calculations.

(a) Defined broadly as PNFCs. Data cover lending facilities in both sterling and foreign currency,expressed in sterling terms. Non seasonally adjusted.

(b) New syndicated lending facilities excluding cancelled or withdrawn facilities. Residencybased on Dealogics attribution at the point of origination. Where lenders shares of asyndicated loan have not been disclosed, Dealogic assume as a default that the loan is sharedequally across participating banks. Some lenders will sell on loans after origination.

(c) Scheduled maturities of syndicated lending facilities excluding cancelled or withdrawnfacilities, translated into sterling. Actual maturities will also reflect the effects of refinancingand prepayments.

Chart A Estimates of syndicated lending facilities

granted to UK businesses(a)

(1) See the box on Recent trends in syndicated lending in Trends in Lending, August2009, available atwww.bankofengland.co.uk/publications/other/monetary/TrendsAugust09.pdf.


10/14

Section 2 Mortgage lending 9

2 Mortgage lending

Recent lending dataThe flow of net sterling mortgage lending by all UK-resident

mortgage lenders increased in May to 1.2 billion, and the

annual rate of growth in the stock of lending edged up to 1.1%

(Table 2.A). According to data from the major UK lenders, net

mortgage lending fell slightly in June (Chart 2.1) as gross

mortgage lending declined by more than repayments.

Data provided by the major UK lenders also include a split of

gross lending between house purchase and the refinancing of

existing mortgages (remortgaging). Gross mortgage lendingfor house purchase was unchanged in June (Chart 2.1),

remaining a little higher than at the start of the year.

Remortgaging activity continued to be weak.

In the official data, total mortgage approvals for house

purchase were unchanged in May. Data from the major UK

lenders indicated that their mortgage approvals for house

purchase decreased slightly in June (Chart 2.2).

Mortgage pricing

Mortgage spreads on new lending over reference rates suchas Bank Rate or swap rates have been elevated since the

start of the financial crisis. Lenders have partly attributed

elevated mortgage spreads to higher longer-term wholesale

funding costs. Some major UK lenders reported that the

recent increase in funding spreads was starting to apply

upwards pressure on loan pricing, though had yet to affect

pricing materially. Consistent with that, the Banks measure of

the overall effective interest rate on new mortgages was

broadly unchanged in May (Chart 2.3).

Spreads over reference rates on secured lending were reported

to have narrowed in the past three months according to a

balance of respondents to the 2010 Q2 Credit Conditions

Survey. Looking forward, respondents expected spreads to

narrow further in the coming quarter with little change in fees.

The flow of net mortgage lending by all UK-resident mortgage lenders increased in May. Grossmortgage approvals declined slightly in June according to data from the major UK lenders. In the2010 Q2 Credit Conditions Survey, a small balance of lenders reported an increase in the amountof new secured credit made available to households, though a decline in the availability of creditwas expected in the next three months. Demand for secured credit for house purchase wasreported to have weakened in 2010 Q2. The major UK lenders expected demand for securedlending to remain muted.

Table 2.A Secured lending to individuals(a)

Averages 2010


Net monthly flow( billions) 9.0 3.4 0.9 0.7 1.5 1.6 1.9 0.3 1.0 1.2

Three-monthannualised growthrate (per cent) 10.3 4.1 0.9 0.4 1.3 1.5 1.6 1.2 1.0 0.8

Twelve-monthgrowth rate (per cent) 11.0 6.9 1.4 0.8 0.9 1.0 1.0 1.0 0.9 1.1

(a) Sterling lending by UK monetary financial institutions and other lenders to UK individuals. Seasonallyadjusted.

0

5

10

15

20

25

Jan. May Sep. Jan. May Sep. Jan. May

House purchase

Other

Remortgaging

Gross lending

Net lending

Net lending billions

2008 09 10

(a)

(a) The split in 2008 is estimated using gross lending data and the split of loan approval valuesbetween house purchase, remortgaging and other advances. The split from 2009 onwards isreported data from the major UK lenders, rather than estimated data. Data cover lending inboth sterling and foreign currency, expressed in sterling terms. Seasonally adjusted.

Chart 2.1 Mortgage lending by the major UK lenders(a)


11/14


In recent discussions, there was a range of views among the

major UK lenders on the outlook for mortgage spreads, partly

reflecting differing perceptions of the balance of effects from a

reported increase in competitive pressures on one hand, and

the effect of elevated longer-term funding costs on the other.

Supply and demandAs with corporate lending, it is difficult to identify precisely the

separate influences of changes in the supply of, and demand

for, mortgages on overall mortgage lending. On the supply

side, in the 2010 Q2 Credit Conditions Survey, a small balance

of lenders reported an increase in the amount of new secured

credit made available to households (Chart 1.6 on page 6),

reflecting an increase in credit availability to borrowers with

high LTV ratios. In the next three months, respondents

expected the availability of secured credit to decrease, partly

reflecting lenders expectations that wholesale funding marketconditions might tighten in that period.

Household demand for secured lending for house purchase

was reported to have weakened slightly in 2010 Q2, according

to the Credit Conditions Survey, while remortgaging demand

was reported to have increased somewhat (Chart 2.4). In

some contrast, the major UK lenders reported that

remortgaging activity had not picked up recently and was

expected to remain subdued in coming months. Looking

forward, the major UK lenders expected demand for secured

lending to be flat over the rest of the year, partly reflecting

weak confidence among potential homebuyers.

Contacts of the Banks network of Agents reported that despite

a slight increase in the availability of credit, demand continued

to be constrained by the restrictions on mortgage finance,

particularly for first-time buyers. In June, the Royal Institution

of Chartered Surveyors new buyer enquiries index was slightly

negative, indicating a decline in demand for house purchase.

In contrast, the new instructions balance rose and continued

to indicate an increase in the number of houses being put up

for sale. In recent discussions, the major UK lenders also

reported that the supply of housing for sale had increased,partly in response to the suspension of Home Information

Packs in May 2010.(1) Looking forward, most major UK lenders

expected house prices and housing transactions, and so gross

lending for house purchase, to be broadly flat over the second

half of 2010.

0

20

40

60

80

100

120

140


Major UK lenders(b)

Major UK lenders(c)

Total(d)

Thousands

2007 08 09 10

(a) Data cover lending in both sterling and euros. Seasonally adjusted.(b) Gross approvals data.(c) Gross approvals from additional, more timely, data reported by the major UK lenders since

late 2008.(d) UK monetary financial institutions and other lenders. These data are net of cancellations and

hence the total can fall below the gross approvals data shown for the major UK lenders.

Chart 2.2 Approvals for mortgages for house purchase(a)

100

80

60

40

20

0

20

40

60

80

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q2 Q4 Q2 Q4 Q2 Q4 Q2

2007 08 09 2007 08 09

House purchase Remortgaging


10 10

Increase

Decrease

+

(a) See footnote to Chart 1.6.(b) A positive balance indicates an increase in demand.

Chart 2.4 Credit Conditions Survey: demand for

household secured lending(a)(b)

0

2

4

6

8

2004 05 06 07 08 09 10

Per cent

Floating mortgage rate

Overall mortgage rate

Fixed mortgage rate

(a) Sterling only. The Banks effective rate interest rates series comprise data from 30 UKmonetary financial institutions.

Chart 2.3 Effective rates on new mortgage lending(a)

(1) For more details see www.communities.gov.uk/news/newsroom/1591783.


12/14

Section 3 Consumer credit 11

Recent lending dataTotal net consumer credit flows turned positive again in May,

having been slightly negative in April, though the annual

growth rate of the stock of lending remained flat (Table 3.A).

Within the total, net credit card lending flows remained

unchanged. By contrast, the flow of other unsecured lending

to individuals increased, though the annual growth rate in the

stock of lending remained negative, as it has been since late

2009 (Chart 3.1). The major UK lenders reported that net

lending flows for total consumer credit remained subdued in

June, though credit card lending strengthened somewhat.

Consumer credit pricingEffective interest rates on personal loans, overdrafts and credit

cards all edged lower in May (Chart 3.2). As such, spreads

between effective interest rates and Bank Rate and Libor were

slightly narrower than in the previous month. However,

spreads on consumer credit particularly for interest-bearing

credit card balances remain significantly wider than in late

2008, which lenders report partly reflects heightened credit

risk on this form of lending. Nonetheless, in the 2010 Q2

Credit Conditions Survey, lenders reported some easing in

credit scoring criteria for credit cards for the first time since2008 Q2 (Chart 3.3). In contrast, credit scoring criteria for

non credit card lending were reported to have tightened

further.

Supply and demandThe balance of respondents to the Credit Conditions Survey

reported that household demand for unsecured lending had

risen in the past three months, especially for non credit card

lending. Looking ahead, lenders expected demand for credit

card lending to be broadly stable over the next three months

and demand for non credit card lending to fall back a little.

On credit availability, respondents to the Credit Conditions

Surveyreported the amount of unsecured credit made

3 Consumer credit

Total net consumer credit flows turned positive again in May, though the annual growth rate in thestock of lending remained flat. Spreads between effective interest rates and Bank Rate and Liborremain significantly wider than in late 2008, particularly on interest-bearing credit cards, reflectingin part heightened credit risk. Respondents to the 2010 Q2 Credit Conditions Surveyreported creditscoring criteria had tightened for non credit card lending, though credit scoring for credit cards wasreported to have eased somewhat for the first time since 2008 Q2.

Table 3.A Consumer credit(a)

Averages 2010


Net monthly flow( billions) 1.1 0.9 -0.1 -0.2 -0.1 0.2 0.4 0.1 -0.1 0.3

Three-monthannualised growthrate (per cent) 6.5 5.2 -0.2 -0.8 -1.0 0.5 1.5 1.3 0.8 0.6

Twelve-monthgrowth rate (per cent) 6.1 6.3 1.7 0.9 -0.2 -0.2 0.0 0.1 -0.1 0.0

(a) Sterling lending by UK monetary financial institutions and other lenders to UK individuals. Seasonallyadjusted.

5

0

5

10

15

20

25

2001 03 05 07 09

Percentage changes on a year earlier

Credit cards

Other unsecured loans

Total consumer credit

+

(a) Sterling lending by UK monetary financial institutions and other lenders to UK individuals.Seasonally adjusted.

Chart 3.1 Consumer credit lending(a)


13/14


0

5

10

15

20

2001 03 05 07 09

Per cent

Credit cards (interest bearing only)

Credit cards (all)

Overdrafts

New personal loans(b)

Bank Rate

Three-month Libor

(a) Sterling only. The Banks effective interest rates series comprise data from 30 UK monetaryfinancial institutions. The rate for personal loans is for new business. For the other series therates shown are for the stock of lending, as comparable data for new lending are notavailable. Data for Bank Rate and three-month Libor are to end-June and for effective ratesto end-May. Non seasonally adjusted.

(b) Only available from January 2004.

Chart 3.2 Effective interest rates on consumer credit(a)

70

60

50

40

30

20

10

0

10

20

30

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q2 Q4 Q2 Q4 Q2 Q4 Q2

2007 08 09 2007 08 09

Credit card Non credit card


10 10

+

(a) See footnote to Chart 1.6.(b) A positive balance indicates a loosening of credit scoring criteria.

Chart 3.3 Credit Conditions Survey: credit scoringcriteria for unsecured lending to households(a)(b)

available to households was little changed in 2010 Q2,

contrary to lenders expectations that it would increase. A

small balance of lenders expected availability to increase in the

next three months, partly reflecting an increase in their risk

appetite.


14/14

Glossary and other information 13

AbbreviationsCFO chief financial officer.

Libor London interbank offered rate (see below).

LTV ratio loan to value ratio (see below).

M&A mergers and acquisitions.

PNFCs private non-financial corporations (see below).

Glossary

Bank Rate The official rate paid on commercial bank

reserves by the Bank of England.

Businesses Private non-financial corporations.

Consumer credit Borrowing by UK individuals to finance

expenditure on goods and/or services.

Consumer credit is split into two

components: credit card lending andother lending (mainly overdrafts and

other loans/advances).

Effective interest The weighted average of calculated

rates interest rates on various types of sterling

deposit and loan accounts. The

calculated annual rate is derived from

the deposit or loan interest flow during

the period, divided by the average stock

of deposit or loan during the period.

Facility An agreement in which a lender sets out

the conditions on which it is prepared to

commit to advance a specified amountto a borrower within a defined period.

Gross lending The total value of new loans advanced by

an institution in a given period.

Loan approvals Lenders firm offers to advance credit.

Loan to value (LTV) Ratio of outstanding loan amount to the

ratio market value of the asset against which

the loan is secured (normally residential

or commercial property).

London interbank The rate of interest at which banks

offered rate (Libor) borrow funds from each other, in

marketable size, in the London interbankmarket.

Major UK lenders Banco Santander, Barclays, HSBC,

Lloyds Banking Group, Nationwide and

Royal Bank of Scotland.

Monetary financial A statistical grouping comprising banks

institutions and building societies.

Mortgage lending Lending to households, secured against

the value of their dwellings.

Net lending The difference between gross lending

and gross repayments of debt in a givenperiod.

Private All corporations whose primary activity is

non-financial non-financial, and that are not controlled

corporations by central or local government.

(PNFCs)

Reference rate The rate on which loans are set, with an

agreed margin over the reference rate

(typically this will be Bank Rate, Libor or

a swap rate).

Remortgaging A process whereby borrowers repay their

current mortgage in favour of a new onesecured on the same property. A

remortgage would represent the

financing of an existing property by a

different mortgage lender.

Swap rate The fixed rate of interest in a swap

contract in which floating-rate interest

payments are exchanged for fixed-rate

interest payments. Swap rates are a key

factor in the setting of fixed mortgage

rates.

Symbols and conventionsExcept where otherwise stated the source of data in charts is

the Bank of England.

On the horizontal axes of graphs, larger ticks denote the first

observation within the relevant period, eg data for the first

quarter of the year.

Bank of England 2010

ISSN: 2040-4042 (online)

Trends July 10

Documents

Transcript of Trends July 10