It's getting harder to borrow money as Britain feels the effects of the worldwide credit crunch...
The Bank of England fired a warning shot across the bows of potential borrowers yesterday with its latest Credit Conditions Survey.
It's getting harder to get loans, as both consumers and companies in Britain are hit by the effects of the worldwide credit crunch.
The Bank's new Credit Conditions Survey is, in my view, one of the better bits of research to emerge from the thinkers of Threadneedle Street. All the Bank's informal chats with top UK lenders have morphed into a major credit report like those already conducted by the US Federal Reserve, the Bank of Japan and the European Central Bank.
So what's the Bank been seeing in its gunsights over the three months to mid-December?
Answer: Loans...starting to dry up
In contrast to what they expected in September, and despite more households seeking to borrow, lenders admit they have been much more cagey about advancing secured loans.
Also, there has been a ‘marked increase in spreads'. Which, roughly translated, means that even those lucky enough to be granted a loan are paying through the nose.
And the woes aren't going away. Far from it. Lenders expect to ration secured credit even more over the next three months. With those nasty spreads widening ever further. And though household mortgage defaults haven't so far increased, lenders see losses on secured lending starting to rise in the future.
Which could make it harder, and more expensive, to get that mortgage.
What's more, slightly less cash was handed over to unsecured borrowers, with further cutbacks on the cards for early 2008.
Bad Company
Yet if households are feeling the pinch, companies are really under the cosh. As they had forewarned, the banks have ‘significantly' slashed corporate sector lending, and are likely to curtail credit lines and toughen lending criteria even further over the next quarter as default rates rise.
So it's just as well that business has generally been, and is expected to remain, less loan hungry. Though there's a big clue here about stock market quoted companies being bought up on borrowed money.
If you're hoping to see a big bounce in leveraged buy-outs...don't get too excited!
SIV negatives
The one corporate exception was, unsurprisingly, those indigent financial firms who have already been credit crunched.
Cash gobbling SIVs - so-called structured investment vehicles which have invested in the much discussed US sub-prime dodgy debt - have been unable to finance their balance sheets in the money markets and have had to be bailed out by the banks.
Which, ultimately, brings us to the root of the problem.
We are now all feeling the backlash as the banks have run low on funds.
Despite all the billions of cash pumped into the system by the financial authorities in the last month, what the Bank's survey can't tell us is when the loan taps will be turned on again.
