Coronavirus: Chances of getting a loan or mortgage are squeezed
Lenders are set to reduce the availability of mortgages, loans and other credit in the coming weeks despite greater demand from consumers.
Mortgage and loan providers have told the Bank of England that the supply of these products will fall in the summer months owing to coronavirus pressures.
It comes as the gradual reopening of the economy and the housing market means people will want to borrow more.
One commentator said the credit squeeze was tighter than a decade ago.
The financial downturn caused by the crisis in banking back then led to a sharp withdrawal of loans and mortgages, particularly for first-time buyers unable to put down much of a deposit.
The same is true now, with lenders taking a cautious approach to offering home loans, particularly as many potential borrowers face uncertainty over their jobs and income, and the number of those defaulting on repayments is expected to rise.
At present, there is only one two-year fixed-rate mortgage available for borrowers offering a 5% deposit, compared with 137 before the coronavirus crisis, according to financial information service Moneyfacts.
For those able to pay a 10% deposit, the choice is greater, but the cost has been rising.
- Credit card spending fell 50% at start of lockdown
- Nationwide offers 90% mortgages to first-time buyers
Lenders told the Bank of England’s Credit Conditions Survey that demand for new mortgages, remortgaging, loans and credit card borrowing had dropped in the three months to the end of May. Consumers had played safe and much of the UK economy was shut down.
All were expecting to see a rise in demand now until the end of August, but supply would be squeezed on all of them. For example, the interest-free period on credit cards will be shortened.
«Since we were hit by the Covid crunch, lending has dried up faster than it did during the financial crisis – and things are only going to get worse,» said Sarah Coles, from investment firm Hargreaves Lansdown.
«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.»
Commentators also said the demand for those looking to move home or buy a property might not be met by mortgage providers.
«The property market clearly has some significant challenges ahead. There are still lenders out there who are keen to get money into the market but finding them can be a challenge in itself,» said Andrew Montlake, managing director of mortgage broker Coreco.