The BoE says that there were signs in the Q4 Credit Conditions Survey that recent developments in financial markets had begun to affect the supply of secured credit to households. Lenders reported that the availability of secured credit to households had been reduced in the three months to mid-December, and that there had been a marked increase in spreads on secured lending. Looking ahead, lenders expected a further reduction in secured credit availability. A small reduction in the availability of unsecured credit to households over the past three months was reported. Lenders reported that they had reduced corporate credit availability significantly, in line with their expectations in the Q3 survey. Lenders expected that corporate credit availability would be reduced further over the next three months.

Contrary to their expectations in the Q3 survey, a net balance of lenders reported a material reduction in the amount of secured credit they were prepared to make available to households over the three months to mid-December (Chart 1 above).

This reduction in secured credit availability was associated with lenders reducing their risk appetite, and targeting a slightly lower market share. The BoE said that the change in lenders’ risk appetite may have reflected a reported reduction in their ability to transfer risk off their balance sheet, together with reported tighter conditions for raising new capital.

Lenders achieved the reduction in secured credit availability in part through a tightening of credit scoring criteria, and by reducing maximum loan to value ratios. Lenders expected the availability of credit to be reduced further over the next three months. This partly reflected further reductions in risk appetite and market share objectives, though lenders’ concerns about the macroeconomic outlook, including the housing market, were also important considerations.