The Bank of England’s interest rate cuts are unlikely to have an effect on the declining availability of credit, says economic research consultancy Capital Economics.
Lenders reported that during the first quarter of 2008 they had reduced the availability of secured credit to households, and expect to reduce it further over the next three months.
This means that borrowers will be faced with putting down bigger deposits for mortgages than before, as well as paying higher mortgage rates.
Similarly, household unsecured credit availability has also dropped over the last three months with predictions that it will also continue to decline in the future.
Vicky Redwood, UK economist at Capital Economics, said that yesterday’s interest cuts would not make “a huge amount of difference” since lenders had failed to pass on previous cuts in interest rates to borrowers.
Borrowers will nevertheless benefit in the short-term from the cuts and lending rates should eventually drop, however Ms Redwood noted that “things are likely to get a little worse before they get a little better”.
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