The total number of loan approvals granted in the second quarter of 2008 continued to fall, new figures from the Bank of England show.

In its newly published study, the Bank identified an overall drop in the availability of secured loans and credit available to UK homeowners in the three months up to mid June. So too, unsecured personal loans were also said to have seen a drop in supply, while corporate credit was similarly affected. However, the group also noted a drop in the overall level of demand for credit and loan products, with further falls expected in both the commercial and consumer spheres.

Reports from lenders were also said to show little likelihood of the reversal of credit tightening trends, with many expecting that availability would decrease further over the next quarter. Commenting on their reasoning behind constricting the availability of lending products, providers cited concerns about the health of the housing market, a changing economic outlook and a repositioned attitude to financial risk as contributing factors.

Furthermore, these effects were expected to continue to make themselves felt to a greater degree over the coming months. Changes in overall economic markets were also said to have made it difficult for many consumers to meet their obligations when it came to loan repayments, with many lenders expecting the number of loan defaults to increase further over the third quarter of the year.

Commenting on the levels of overall demand for credit and lending products, the Bank said data was difficult to analyse because some lenders were underrepresented in the study. It explained that while the number of loan requests for remortgaging purposes had increased during the quarter, this could in fact have been a result of a tightening in the number of approvals for other forms of lending, which was said to make it difficult to truly assess the nation’s desire for additional loans and credit.

Looking at the state of the unsecured credit market, the study indicated: “Lenders reported a slightly larger reduction in the amount of unsecured credit they were prepared to make available to households and small businesses than they had anticipated three months ago. Approval rates for credit card and non-credit card lending were reported to have fallen. Lenders had tightened credit scoring criteria further for non-credit card unsecured borrowers, though scoring criteria remained broadly unchanged on credit card lending. For those credit card borrowers that met scoring criteria, credit limits were reported to have been lowered. Looking ahead, lenders expected a further reduction in overall unsecured credit availability, mainly through a tightening in credit scoring criteria.”

Similar reasons were given for the reduction in personal loans availability, with those questioned indicating that this area of credit is likely to tighten still further in the next three months as providers look to limit their exposure to risk and wait to see whether economic forecasts improve.

Earlier this year, MoneyExpert revealed that despite interest rate cuts from the Bank of England, the average rate on a personal loan had continued to increase since the beginning of the year.

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