CML: BoE credit conditions survey

Responding to the latest credit conditions survey published by the Bank of England, the Council of Mortgage Lenders makes several points:

The clear mismatch between expectations at the time of the last survey and actual experience in the three months since then emphasises how volatile and difficult the market has been. Against this backdrop, it is not surprising that sentiment has become markedly gloomier.

However, it is important to note that the default rate on secured loans has not proved as bad as lenders feared three months ago. But where defaults have occurred, the level of loss has been higher than expected.

The survey reinforces the CML's view that demand for secured lending has held up but that supply has been constrained. However, with sentiment worsening the survey also suggests that lenders believe demand will now also be affected.

Only a small balance of lenders saw house price expectations as having affected secured lending over the past three months. But a much larger balance expect house price expectations to affect lending over the next three months.

Taken together, all these factors reinforce the CML's forecast of a slower market in 2008, and one in which the supply-side funding constraints risk tipping into a potentially significant reduction in consumer demand for lending.

Bob Pannell, CML head of research, commented: "This survey corroborates other evidence of worsening market sentiment. This may increase the chances of interest rate cuts sooner rather than later if inflation remains subdued.

"Borrowers should make a New Year resolution to review their finances and plan ahead if they are coming off fixed rate deals later this year."