Lenders saw demand for both mortgage lending and unsecured products fall to historic lows in the three months to May, as borrowers brought spending to a sharp halt during the lockdown.
The latest Credit Conditions survey from the Bank of England shows the sharp drop in demand for mortgage lending in particular during the three months to the end of May, although lenders told the central bank they expect this demand to increase in the coming months.
The Bank of England published the results of the 2020 Q2 survey yesterday (July 16), which revealed that the demand for lending on house purchases dropped by a balance of more than 110%, while demand for remortgaging dropped by about 90% on the previous three months. This demand is expected to rise in the next three months.
Lenders, who took part in the survey during the first three weeks of June, reported that demand for unsecured lending products also decreased in the three months to May, with the demand for credit card borrowing falling by around 120%.
Lenders also said, however, that demand for unsecured credit is also anticipated to increase during the coming months.
As well as the huge drop in demand, the survey portrays how lenders changed the supply of credit during the three months to May.
The report shows that the availability of credit to households decreased in this period, as lenders retrenched and tightened up credit criteria. The availability of secured credit to households decreased by a balance of around 70%, compared with the period from December to February. Lenders reported that they expect this to decrease further over the next three months to the end of August.
The availability of unsecured credit to households followed the same pattern. This decreased in Q2 by around 60% and lenders expect a further decrease in Q3.
This wider trend is borne out by recent figures from Moneyfacts, which show that credit card offers dropped to a new low in June, as risk appetite dried up among lenders, while a separate UK Finance report showed this week that consumers made 163 million fewer credit card transactions in April this year, compared to April 2019.
Lenders also reported to the Bank of England that the length of interest-free periods on credit cards for balance transfers, and on purchases, decreased in Q2.
Lenders reported that the balance of default rates on mortgages increased slightly, and is expected to increase further in Q3. The same was reported for unsecured lending products.