More credit for small UK businesses but housing market slump continues

BANKS are increasing their lending to small businesses and expect to raise the availability of credit in the coming months, a Bank of England report revealed yesterday.

Yet demand for mortgages is low and expected to keep falling, according to the credit conditions survey.

And fears over falling house prices are preventing some lenders from increasing mortgage loans.

“Significantly, the report indicates a continuing preference among lenders to steer away from higher risk loans,” said Simon Rubinsohn of the Royal Institute for Chartered Surveyors.

“While the availability of finance for ‘low’ loan to value mortgages [75 per cent and less] has actually increased, it has contracted where smaller deposits are put down by borrowers,” he added.

However, sales of properties worth over £500,000 are attracting higher loan to value mortgages, according to a separate survey by chartered surveyors e.surv.

Overall, secured lending to households remained stable in the final quarter of 2010, the Bank’s report said. Unsecured credit fell slightly.

Yet lending to small businesses crept up for the third consecutive quarter and banks say it will continue to rise.

Last month the Bank expressed concern about low availability of credit. Lending to small business and individuals “has remained subdued even as economic activity has begun to recover. Weak lending is more likely to dampen the recovery than weak demand,” it said.