Lending dried up quicker in the second quarter than it did during the credit crunch, Bank of England data has revealed.
The Bank’s credit conditions survey has revealed that mortgages, loans and credit card lending all dropped in the second quarter, with further decreases expected.
Lenders reported that more unsecured loans and credit card applications were rejected and will continue to do so. The length of interest-free periods shortened in the second quarter, with this trend also set to continue.
In the three months to May it became tougher to obtain a high loan-to-value mortgage and this is also set to become more difficult next quarter.
In the second quarter demand for borrowing dropped but banks and building societies have predicted a return to borrowing in the three months to August.
“Since we were hit by the Covid-19 crunch, lending has dried up faster than it did during the financial crisis – and things are only going to get worse,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.
“In the three months to May, worried banks tightened their lending criteria. It became much more difficult to get a mortgage with a small deposit, credit card companies slashed credit limits, and interest-free periods shrunk.
“It goes to show just how worried banks are about the state of the economy, and what could happen to jobs and house prices.”
She warned that in the next three months borrowers will face a worse situation.
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“Lending will be even harder to come by, and at the same time, the end of lockdown means demand is going to rebound. So, more people are going to be left struggling to find the lending they need,” Coles said.
“It means you’re more likely to need a Plan B. In a world where it’s harder to borrow cheaply to make ends meet, it’s essential to put together a budget to help you balance your income and spending.
“Where your income has fallen, this is going to be a painful process of cuts. However, it’s far better to face the pain now, than wait until you have a debt problem on top of everything else.”