Are Mortgage Defaults On The Rise For 2008?
Following its latest quarterly Credit Conditions Survey for the last 3 months of 2007, the Bank of England has warned of an expected increase in mortgage defaults for the first quarter of 2008.
In the aftermath of the credit crunch more and more banks have tightened their lending conditions, making them less willing to lend to one another. Higher costs and reduced credit availability are said to be the reasons behind the increasing difficulties both homes and businesses are now experiencing in their quest to borrow funds.
The Bank claims that as a result of stricter lending criteria we are already seeing a reduction in both secured and unsecured lending. It added that, "recent financial market turbulence as well as expected changes in the cost and availability of funds, would point to lower credit supply".
This warning sparks hope that the BoE will make a further cut in interest rates this week. The base rate was cut to 5.5% from 5.75% in early December following a unanimous decision by the Monetary Policy Committee. It was also the first rate cut since August 2005.
UK economist at Capital Economics, Ms Vicky Redwood said that as a result of the survey's indications, consumer spending along with business investment would be sure to suffer. This in turn would naturally have an impact on the UK economy.
She added, "Together with the delayed impact of previous rate hikes and the global slowdown, the credit crunch should push GDP (gross domestic product) to 2% or lower this year and next".
The next MPC meeting to discuss interest rates is scheduled for today, Thursday 7th February.
Published on February 7, 2008
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