Tough months ahead for credit-strapped consumers

by Gill Montia

Story link: Tough months ahead for credit-strapped consumers

The Bank of England has today warned that the effects of the credit crisis on consumers is likely to intensify over the coming three months.

In its report, the Bank said: “The reduction in secured credit availability was associated with a reduced risk appetite and increased concerns about the macroeconomy and the housing market.”

Banks and building societies are expected to continue to reduce their mortgage lending, as the cost of wholesale borrowing on the money markets remains high. Lenders are also expect to cut back on unsecured lending on credit cards and overdrafts.

The report also found that cuts in the base rate in December of last year and in February, have failed to significantly benefit either households or companies.

Furthermore, the number of borrowers failing to keep up repayments on their loans and mortgages rose in the first three months of 2008, compared to the previous quarter. Losses from such defaults, including repossessions, are expected to rise.

In the twenty-four hours before the Bank published its comments a number of banks and building societies either stopped offering mortgages to new customers, withdrew their most competitive mortgage deals or raised their interest rates.