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Demand for both secured and unsecured lending rose in the second quarter of the year, but banks have revealed that they plan to tighten their affordability criteria over the coming months, in anticipation of a credit squeeze.
According to the latest Credit Conditions Survey from the Bank of England, lenders reported that demand for secured lending for house purchases increased in the second quarter of the year, but is expected to decrease in the third quarter.
Demand for all types of unsecured lending also increased last quarter, and is expected to remain unchanged in the third quarter of the year.
Read more: Quarter of SMEs blame lack of lending for UK’s ‘investment gap’
Lenders also told the central bank that demand for corporate lending from businesses of all sizes was unchanged in the second quarter, but is expected to decrease slightly in the months ahead.
Meanwhile, default rates on unsecured loans slightly increased in the Spring, with further default rises expected later this year.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said that banks are toughening up their lending criteria now as “they are mindful that there’s a rising risk that people will struggle to stay on top of their debts.”
Read more: Personal borrowing rates reach six-year high
“The problem with borrowing for everyday costs is that you’re adding more interest and repayments to your ongoing costs, so that every month, the impossible challenge of making ends meet becomes harder.
“As we’ve gone through the year, rising interest rates have added to the problem.
“It’s no wonder that defaults on unsecured lending increased over the Spring, and the banks say they’re expecting default rates on both mortgages and unsecured lending to rise in the next couple of months.
“It got tougher to secure a mortgage during these three months, as banks started factoring higher prices into their mortgage calculations. They said they expected to make it even harder to borrow over the summer.”
Read more: Record breaking quarter for second charge lending
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