Fewer loans to consumers in the first quarter of 2008

As loan conditions in the money markets tighten and the banks become unwilling to lend to one another, the market credit costs are rising. People are left with fewer choices and residential property is witnessing a slowdown due to reduction in the number of home loans.

The hundred percent mortgages are fast becoming a thing of the past history with only 14 lenders offering such mortgages. The average loan-to-value in January was 88%. Since December 2007, 41 lenders have reduced their maximum loan offerings, widely affecting the first time buyers in the market.

According to the Bank of England, there was a considerable reduction in mortgage loans during the 3 months to mid-December. Although the mortgage lending increased to £26.5 billion in January – a rise of 11% from £23.9 billion in December – but, still it was lower than most months in 2007.

Economists say that the credit crunch is having an adverse impact on inter bank lending and it is feeding through to corporate and homeowners’ ability to raise loans. This might push the economy close to recession. The housing market is already going through a lean phase. Howard Archer, chief economist at Global Insight, was of the opinion that credit availability would reduce further in the first quarter of 2008, adding to the increasing downward pressures on consumer spending.