Lending crackdown to worsen, warns Bank of England

Lenders are ready to tighten the screw on households and businesses in the final quarter of the year, the latest Bank of England snapshot of credit conditions revealed on Thursday.

Banks and building societies cut back on unsecured credit like personal loans and credit cards between July and September and expect a “significant decrease” in the final quarter, the Bank said.

Credit scoring criteria have been tightened up “while the proportion of unsecured credit applications being approved fell “significantly”, its credit conditions survey said.

Since peaking in March this year, the period of interest-free balance transfers on credit cards offered by banks has fallen by three months.

The trend by lenders — while painful for borrowers — will offer some reassurance to Threadneedle Street policy- makers increasingly concerned over “pockets of risk” in consumer lending and lax loan underwriting standards.

It recently ordered banks to set aside an extra £10 billion in capital against consumer loan losses in a worst-case recession scenario.

Lenders have reacted to concerns over customer indebtedness and inflation bearing down on real incomes, while default rates on consumer credit have “increased slightly”.

Businesses are also feeling the pinch as spreads on lending — the banks’ profit margins — on firms widened between July and September and were expected to stretch further in the final quarter.

In the mortgage market, banks have raised lending “slightly” but are aiming at lower-risk borrowers with more than 25% equity. Mortgage defaults saw their first increase since early 2016.