Borrowing declined despite Government Efforts

House prices tumbled by a further 2.2 per cent in December, after falls of 2.6 per cent in November and 2.4 per cent in October according to figures from Halifax. Market experts had predicted a 1.7 per cent drop in December.

The forecast also suggested that prices would be 16.6 per cent lower over the past quarter compared with 2007. The Bank said secured lending was likely to drop again in the next three months. It added that unsecured lending including credit card debt and lending to businesses had also been cut in the final quarter of last year.

On the other side of the Atlantic, US consumers are experiencing similar problems when it comes to bank lending. The US lending difficulty has not been splashed all over the media compared to UK and it is thought that the political transition has overshadowed any such rhetoric on bank lending.

Reports suggest that UK mortgage approvals dropped to a new record low in November and banks reduced loans to households and businesses in the final three months of 2008. The Bank of England says that a declining economy and the property crunch have discouraged lending.

Tightened lending hurting consumers
Critics say that the banks have created a situation where the consumer makes open ended financial commitments while lenders wilfully put their own short-term self interests, totally ignoring current effects of credit crunch on the national economy. Experts say that with the UK banks holding back on lending and the Government may be forced to play the role of the strikebreaker in order to ensure that consumers can access loans again.

Many consumers feel that the Government is acting both confused and weak in its approach to the banks and it has been accused of failing to ensure that there is continued lending to sound business which will also keep the British economy going.

However some lending critics argue that any further attempts by the Government to push banks to lend at a time when the economy is in recession is a big mistake. It is thought that the initial point of recapitalising banks is aimed at shoring up their balance sheets and unfreezes the interbank markets.

Demand for home loans still steady
Market sources say that this will preserve the basic financial system and loans are likely to flow as bankable opportunities present themselves. It is also thought that encouraging imprudent loans at this stage might spread the problem and possibly result in more calls on Governments to rescue banks.

However, Halifax's quarterly credit conditions survey show that secured lending to households in the form of mortgages was tighter between October and mid-December. Public demand for mortgages and remortgage loans remained largely stable over the period, while businesses seeking loans for capital investment, mergers and acquisitions activity and from the real estate sector declined.

Britain's biggest mortgage lender, Halifax also reported that house prices dropped 16.2 per cent lower in the final three months of last year compared with the same period in 2007. The bank says that the figures show a much faster decline since it began keeping records in 1983. The drop is also faster than the early 1990s recession and housing bust.


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