Credit Conditions Review - 2016 Q3

This publication presents our assessment of the latest developments in bank funding and household and corporate credit conditions. It draws on sources including the results of the Bank Liabilities Survey and Credit Conditions Survey, other statistics we have collected and surveys from other organisations.
Published on 14 October 2016

The Review covers data and intelligence gathered up to end-September 2016. Unless stated otherwise, the data reported cover lending in both sterling and foreign currency, expressed in sterling and are seasonally adjusted.


Bank funding conditions have seen a substantial improvement throughout 2016 Q3, having deteriorated somewhat in the immediate aftermath of the UK referendum on membership of the EU. Bank funding costs were lowered by falls in swap rates across all maturities. Measures of banks’ long-term wholesale funding spreads have also declined over the past three months and are now close to their lowest levels in 2016. Key retail deposit rates have also fallen. In the Bank of England’s Bank Liabilities Survey, UK banks reported that lower funding costs led them to decrease their transfer prices significantly. Issuance of long-term debt by UK banks was strong in Q3 relative to the past few years, and retail deposit growth remained robust.

UK lenders have announced reductions in secured and unsecured lending rates, for both new and existing loans to households, on average, over the past few months. Secured credit demand for house purchase fell significantly in the three months to mid-September, while availability was unchanged, according to lenders responding to the Bank of England’s Credit Conditions Survey. In discussions that took place in late September, major UK lenders reported that the fall in demand was likely to have been driven by temporary factors that led borrowers to defer mortgage applications, particularly the outcome of the UK referendum on membership of the EU. Consumer credit continued to grow solidly, and in contrast to secured lending, lenders responding to the Credit Conditions Survey reported that demand for non-credit card unsecured lending increased slightly in Q3, and was expected to increase further in Q4.

The cost of credit to most businesses appears to have fallen alongside recent decreases in reference rates. Lenders responding to the Bank of England’s 2016 Q3 Credit Conditions Survey reported no change in spreads over reference rates for small and large businesses and a significant fall for medium-sized private non-financial corporations. The availability of credit to businesses was little changed according to lenders responding to the Credit Conditions Survey, though in recent discussions some major UK lenders noted that availability had tightened slightly for businesses in the real estate sector. Demand for credit from businesses weakened across all business sizes in Q3.

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