Questions from the Credit Conditions Survey

Posted on 13 July 2017 by Ray Boulger

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The Bank of England today published the results of its Q2 Quarterly Credit Conditions Survey, which was conducted between 22 May and 9 June. Commenting on the supply of secured credit the report states:

“The availability of secured credit to households was reported to have increased in the three months to mid-June 2017, driven by lenders’ market share objectives. But lenders expect availability to fall slightly over the next three months to mid-September, reflecting a changing appetite for risk. Lenders expect that slight reduction in availability to affect only borrowers with loan to value (LTV) ratios of more than 75%, and in particular those with a LTV ratio of more than 90%.”

However, lenders expect an increase in demand for secured lending in Q3, solely driven by purchase lending, and so the logical conclusion of an expected increase in demand and a slight fall in supply would be a narrowing of spreads. However, lenders expect “a further significant narrowing of spreads in Q3.”

The inconsistency of the above forecasts made me wonder how good the combined forecasts of banks and building societies for the next quarter had been in the past and tables included in the report provides a way to assess this.

The first question is: “How has the availability of secured credit provided to households changed?” This is expressed as a “net percentage balance,” the methodology of which, as explained below*, is inevitably somewhat complicated but below are the forecasts for each quarter over the last 2 years and the outturn subsequently reported.




Q3 2015



Q4 2015



Q1 2016



Q2 2016



Q3 2016



Q4 2016



Q1 2017



Q2 2017



Q3 2017



*To calculate aggregate results, each lender is assigned a score based on their response. Lenders who report that credit conditions have changed ‘a lot’ are assigned twice the score of those who report that conditions have changed ‘a little’. These scores are then weighted by lenders’ market shares. The results are analysed by calculating ‘net percentage balances’ — the difference between the weighted balance of lenders reporting that, for example, demand was higher/lower or terms and conditions were tighter/looser. The net percentage balances are scaled to lie between ±100.

A positive balance indicates that lenders, on balance, reported/expected credit availability to be higher than over the previous/current three-month period.

My conclusion is that despite being the ones which actually provide secured credit the wisdom of the banking and building society crowd in forecasting its availability is suboptimal.

Maybe in future quarterly surveys The Bank should add another two questions:

  • How does this quarter’s outturn compare with your forecast?
  • Please explain your analysis of the reasons for any difference.

Categories: Bank of England, Mortgages, Property market


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