Boetrends In Lending July09

Trends in Lending July 2009

BANK OF ENGLAND

Trends in Lending July 2009 This publication presents the Bank of England’s assessment of the latest trends in lending to the UK economy. It draws mainly on long-established official data sources, such as the existing monetary and financial statistics collected by the Bank. These data are supplemented by the results of a new data set, established by the Bank in late 2008, to provide more timely data covering aspects of lending to the UK corporate and household sectors.(1) The Bank collects these data on behalf of the Lending Panel,(2) which was established by the Chancellor in November 2008 to monitor lending to the UK economy and to promote best practice across the industry in dealing with borrowers facing financial difficulties. The new data set — referred to as ‘Lending Panel data’ — covers the major UK lenders:(3) Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland. Together they accounted for around 65% of the stock of lending to businesses, 50% of the stock of consumer credit, and 70% of the stock of mortgage lending at the end of 2008. These data have provided a useful input to discussions between the major lenders and Bank staff, giving staff a better understanding of the business developments driving the figures and this intelligence is reflected in the report. The report also draws on intelligence gathered by the Bank’s regional Agents and from market contacts, as well as the results of other surveys. The focus of the report is on lending, but broader credit market developments, such as those relating to trade credit or capital market issuance, may be discussed where relevant. The report covers official data up to May 2009, supplemented by Lending Panel data and intelligence gathered up to end June 2009. Unless stated otherwise, the data reported cover lending in both sterling and foreign currency, are expressed in sterling terms, and are not seasonally adjusted. Lending Panel data are provided to the Bank on a ‘best endeavours’ basis. This, together with their relative timeliness, means that they may not be as accurate as established data sets. As a result, care is needed in interpreting the Lending Panel data presented in this report.

(1) For a fuller background please refer to the first edition of Trends in Lending available at: www.bankofengland.co.uk/publications/other/monetary/TrendsApril09.pdf. (2) The Lending Panel comprises Government, lenders, consumer, debt advice and trade bodies, regulators and the Bank of England. See www.hm-treasury.gov.uk/press_126_08.htm. (3) Membership of the group of major UK lenders is based on the provision of credit to UK-resident companies and individuals, regardless of the country of ownership.

Contents Executive summary

3

1

Lending to UK businesses

4

2

Mortgage lending

7

3

Consumer credit

10

Glossary and other information

11

Executive summary

3

Executive summary The flow of net lending to UK businesses remained negative in May. Some UK businesses repaid bank debt using funds raised on the capital markets. But, taken together, funds raised by businesses from banks and capital markets remained weak. Spreads and fees are reported to have risen in recent months, which the major UK lenders have attributed to higher longer-term funding costs and credit risk, though some of them thought that spreads may now be close to reaching a plateau. And, for some major UK lenders, a stabilisation in the economic outlook, as well as slightly more plentiful and cheaper funding, was expected to help them make credit more available over the next three months. Lenders reported little actual or expected increase in demand for credit, except for balance sheet restructuring. Official data for May showed the lowest flow of total net mortgage lending since the monthly series began in April 1993, but the major UK lenders reported that in June their flow of net mortgage lending rose a little. The major UK lenders reported a further rise in approvals for house purchase in June, suggesting that mortgage lending for house purchase may continue to strengthen in coming months. Fixed mortgage rates rose in June, in part reflecting increases in swap rates. Some major UK lenders have reported that signs of stabilisation in housing market activity and prices, and the margins prevailing on higher LTV products, have slightly increased their appetite to lend at higher LTVs. Net flows of consumer credit remained weak in May. Within the total, net consumer credit excluding credit cards remained subdued, but was positive for the first time since December 2008. Spreads on credit card lending have continued to rise, reflecting higher actual and expected default rates. None of the major UK lenders reported any plans to expand the availability of consumer credit, and they had yet to detect any significant signs of an increase in demand.

4

Trends in Lending July 2009

1 Lending to UK businesses The flow of net lending to UK businesses remained negative in May. Some UK businesses repaid bank debt using funds raised on the capital markets. But, taken together, funds raised by businesses from banks and capital markets remained weak. Spreads and fees are reported to have risen in recent months, which the major UK lenders have attributed to higher longer-term funding costs and credit risk, though some of them thought that spreads may now be close to reaching a plateau. And, for some major UK lenders, a stabilisation in the economic outlook, as well as slightly more plentiful and cheaper funding, was expected to help them make credit more available over the next three months. Lenders reported little actual or expected increase in demand for credit, except for balance sheet restructuring. Recent lending data

Table 1.A Lending to UK businesses(a) Averages

2009

2007 2008 Net monthly flow (£ billions)

Jan.

Feb.

Mar.

Apr. May

7.0

4.0

1.1

-1.0

1.2

-6.0 -3.4

Three-month annualised growth rate (per cent)

19.4

10.7

0.5

0.2

0.9

-3.9

-5.4

Twelve-month growth rate (per cent)

16.5

17.1

7.9

5.6

3.9

1.1

0.1

(a) Lending by monetary financial institutions to private non-financial corporations. Investments and holdings of securities are not included. Seasonally adjusted data.

Chart 1.1 Contributions to growth in lending to UK businesses(a) Percentage points Foreign-owned

Other lenders

Major UK lenders

Total (per cent)

40

30

20

10

+ 0

– 10

2007

20 08

09

(a) Monetary financial institutions’ lending to private non-financial corporations. Three-month annualised growth rates in the stock of lending.

Official data covering lending by all UK-resident banks and building societies showed that the flow of net lending to UK businesses remained negative in May (Table 1.A). Net repayments made by businesses to foreign lenders in particular have depressed overall net lending flows in recent months (Chart 1.1). The major UK lenders reported that their net lending flows remained very weak in June. Consistent with that, in the June CBI Financial Services Survey, banks reported that over the past three months their business volumes fell at the fastest rate since 1991. Some UK businesses have repaid bank debt using funds raised on the capital markets. In some cases, where companies have breached loan-to-value (LTV) covenants, they have raised equity in order to reduce their outstanding bank debt, and so put themselves in a better position to secure refinancing. That has been particularly prevalent in the real estate sector, where falls in commercial property values have raised LTV ratios of some loans above thresholds set by the lenders. Bond issuance by investment-grade companies has also been relatively buoyant in recent months, allowing these companies to mitigate the impact of a shortening in the maturity of bank lending available (see June Trends in Lending). The Deloitte CFO Survey reported that sentiment among chief financial officers (CFOs) about equity and corporate bond issuance rose in June, to its highest level since the survey started in 2007. And for the first time there was a preference for bond and equity issuance over bank borrowing. However, funds raised on the capital markets remained low relative to past bank lending flows, so overall net funds raised by UK businesses remained very subdued in May (Chart 1.2).

Section 1 Lending to UK businesses

Corporate loan pricing

Chart 1.2 Net funds raised by UK businesses(a) £ billions 20 Loans

Bonds

Equity

Total

15

10

5

+ 0

– 5

2007

08

09

10

(a) Private non-financial corporations. Loans are seasonally adjusted, but bond and equity issuance is not, as it has been found not to be significantly seasonal. Commercial paper is included within bonds.

Chart 1.3 Credit Conditions Survey: spreads and fees on loans(a)(b) Net percentage balances

Spread on loans

Fees/commissions on loans

20 10

+

0

– 10 20 30 40 50 60 70

Increase in spreads and fees Q2

Q4 2007

Q2

Q4 08

Q2 Q2 Q4 09 2007

Q2

Q4 08

Q2 09

80

(a) Net percentages are calculated by weighting together the responses of those lenders who answered the questions. The blue bars show the responses over the previous three months. The red diamonds show the expectations over the next three months. Expectations balances have been moved forward a quarter so that they can be compared with the actual outturns in the following quarter. (b) A negative balance indicates an increase in spreads and fees. Covers lending to medium-sized companies only.

Chart 1.4 Credit Conditions Survey: corporate credit availability and demand for credit(a)(b) Net percentage balances Availability of credit

Demand from medium PNFCs(c)

Demand from large PNFCs(c)

5

50 40 30 20 10

+ 0 – 10 20 30

The total cost of bank finance to a company can be decomposed into the fees charged by the bank to provide facilities, the spread over a given reference rate (Libor or Bank Rate) at which loans are offered, and the prevailing level of that reference rate in the financial markets. In the Bank of England’s 2009 Q2 Credit Conditions Survey a net balance of lenders reported that spreads and fees had risen over the three months to mid-June, though the net balance was much smaller than in previous quarters (Chart 1.3). Contacts of the Bank’s regional Agents have also continued to report paying higher spreads and fees on renewed or extended facilities. One factor that lenders have cited for the upward pressure on spreads over Libor or Bank Rate has been the difficulty and expense of raising longer-term funding. Funding conditions for lenders have eased slightly over the past three months, moderating somewhat that influence on spreads. On the other hand, in the Credit Conditions Survey lenders continued to report that defaults and losses on loans to companies had increased and were expected to rise further. This deterioration in the credit quality of borrowers has caused lenders to widen spreads to cover the higher expected cost of default. Looking forward, in recent discussions with the Bank some major UK lenders thought that spreads may be close to reaching a plateau. Indeed, several reported recent instances where renewed competition to grant loans had led to some compression of spreads. Some lenders reported that a further easing in longer-term funding conditions might also allow them to reduce spreads over Libor or Bank Rate.

Supply and demand The amount of lending and its price depend on the interaction of demand and supply factors. Disentangling the separate influences of changes in the supply of and demand for credit is extremely difficult, though surveys can help. In the Credit Conditions Survey a net balance of lenders reported that they had increased the availability of credit over the past three months, albeit by less than they had expected (Chart 1.4). Some contacts of the Bank’s regional Agents felt that banks’ appetite for lending had increased in June, but others continued to report difficulties in accessing finance, notably in the property and construction sectors and some retail sectors. The flow of gross new facilities granted by the major UK lenders has not changed significantly since the beginning of the year (Chart 1.5). Those new facilities are reported to continue to reflect mainly the refinancing of existing customers’ facilities, and so have not flowed through into additional (or net) lending.

40 50 Q2 Q4 Q2 Q4 Q2 Q2 Q4 Q2 Q4 Q2 Q2 Q4 Q2 Q4 Q2 2007 08 09 2007 08 09 2007 08 09

60

(a) See footnote to Chart 1.3. (b) A positive balance indicates that more credit is available or there is greater demand. (c) Private non-financial corporations.

A net balance of lenders in the Credit Conditions Survey expected to increase further the availability of credit in 2009 Q3, particularly those lenders who have made lending commitments under the Government’s Asset Protection Scheme (APS). A stabilisation in the economic outlook, as well

6

Trends in Lending July 2009

Chart 1.5 Gross new loan facilities granted by the major UK lenders(a)

as slightly more plentiful and cheaper funding, was expected to help increase credit availability.

Wholesale and retail trade Manufacturing Real estate Other

Construction Renting and other business activities Hotels and restaurants

£ billions

12

10

8

6

4

2

Dec.

Jan.

Feb.

Mar.

2008

Apr.

May

0

June

09

(a) Lending Panel data, available from December 2008 only. Lending Panel data are generally of lower quality than existing data sources and have a short history. As a result, less weight should be attached to this chart than to those using existing data sources.

Chart 1.6 Financial surplus of UK businesses(a) Per cent of nominal GDP

4 3 2 1

+ 0

– 1 2 3

4 5 1988

91

94

97

2000

03

06

09

6

Sources: ONS and Bank calculations. (a) Private non-financial corporations. Four-quarter moving average is shown. Financial surplus is measured as the difference between total income and outgoings.

In the Credit Conditions Survey, and in discussions with the Bank, lenders have continued to report subdued demand for new loans, in particular for capital investment. Contacts of the Bank’s regional Agents have reported very weak investment intentions and a preference for preserving cash — as their normal tendency to hoard cash at a time of uncertain demand is being exacerbated by concerns over the availability of working capital. Since the beginning of 2008, the Deloitte CFO Survey has reported that a net balance of companies think that UK corporate balance sheets are overleveraged. Lower spending on capital equipment and inventories by businesses has allowed them to maintain a historically high financial surplus (defined as total income net of outgoings) in the face of lower profits (Chart 1.6). This financial surplus has been used in part to repay bank debt and so reduce leverage. Looking forward, in the Credit Conditions Survey lenders expected some increase in loan demand from small and medium-sized companies in 2009 Q3. Demand from large companies was expected to be unchanged (Chart 1.4). The divergence perhaps reflects the greater ability of large companies to access the capital markets. Demand for lending was still mainly expected to be for balance sheet restructuring — the refinancing of existing loans, sometimes also requiring the borrower to inject more equity. Weaker spending on capital equipment and inventories was expected to continue to reduce demand for credit. In the June Deloitte CFO Survey there was a big increase in the percentage of companies expecting mergers and acquisitions (M&A) activity to increase over the next year. But in the Credit Conditions Survey, and in discussions with the Bank, lenders reported only very tentative expectations of greater loan demand for that purpose.

Section 2 Mortgage lending

7

2 Mortgage lending Official data for May showed the lowest flow of total net mortgage lending since the monthly series began in April 1993, but the major UK lenders reported that in June their flow of net mortgage lending rose a little. The major UK lenders reported a further rise in approvals for house purchase in June, suggesting that mortgage lending for house purchase may continue to strengthen in coming months. Fixed mortgage rates rose in June, in part reflecting increases in swap rates. Some major UK lenders have reported that signs of stabilisation in housing market activity and prices, and the margins prevailing on higher LTV products, have slightly increased their appetite to lend at higher LTVs. Recent lending data

Table 2.A Secured lending to individuals(a) Averages

2009

2007 2008 Net monthly flow (£ billions)

Jan.

Feb.

Mar.

Apr. May

9.0

3.4

0.9

1.4

0.6

0.9

0.3

Three-month annualised growth rate (per cent)

10.4

4.0

1.2

1.4

0.9

0.9

0.6

Twelve-month growth rate (per cent)

11.0

6.9

2.9

2.4

1.9

1.5

1.3

(a) Lending by monetary financial institutions and other lenders to UK individuals. Seasonally adjusted data.

Chart 2.1 Gross mortgage lending by the major UK lenders(a)(b) £ billions Remortgaging Other House purchase

Net lending Gross lending Net lending Lending Panel data

25

Official data covering all lenders showed that total net mortgage lending fell in May (Table 2.A), the weakest flow since the monthly series began in April 1993. But the major UK lenders reported that in June their flow of net mortgage lending rose a little (Chart 2.1). Data collected from the major UK lenders for the Lending Panel provide a split of gross lending (lending before repayments are deducted) between house purchase and the refinancing of existing mortgages (remortgaging). Chart 2.1 shows that since the beginning of the year gross mortgage lending for house purchase by the major UK lenders has been rising. Until May that had been more than offset by weaker remortgaging activity, but in June remortgaging activity also edged higher, leading to the first increase in total gross mortgage lending by the major UK lenders since April 2008.

20

15

10

The increase in gross mortgage lending for house purchase by the major UK lenders reflects the increase in approvals for house purchase since the beginning of the year. Approvals rose further in June in the Lending Panel data (Chart 2.2), suggesting that mortgage lending for house purchase may continue to strengthen in coming months.

5

Mortgage pricing Jan

July 2008

0

Jan. 09

(a) The split in 2008 is estimated using gross lending data and the split of loan approval values between house purchase, remortgaging and other advances. The split using Lending Panel data in 2009 is reported, rather than estimated, data. Seasonally adjusted data. (b) Lending Panel data are generally of lower quality than existing data sources.

In May, the Bank’s measure of the overall effective mortgage rate paid by individuals was little changed. But in June many lenders announced increases in their fixed mortgage rates, and the Bank’s measure of quoted two-year fixed mortgage rates rose (Chart 2.3). Fixed rates increased by more than comparable two-year swap rates, leading to a further widening in the spread between them. This spread has risen significantly since the onset of the financial crisis, which lenders have attributed to higher longer-term funding costs and greater credit risk. But discussions with the major UK lenders indicated that, for some, the most recent increase in spreads

8

Trends in Lending July 2009

Chart 2.2 Approvals for mortgages for house purchase(a) Thousands

140

Major UK lenders(b) Major UK lenders (Lending Panel data)(b) Total(c)

120

may also have reflected the strength of demand for fixed-rate mortgages relative to their capacity to fund them. Since the beginning of the year, borrowers have increasingly chosen to take out fixed-rate mortgages, which accounted for around 70% of new mortgages in May.

100 80 60 40 20 0 2007

08

09

(a) Seasonally adjusted. (b) Gross approvals data. (c) Monetary financial institutions and other lenders. These data are net of cancellations and hence the total can fall below the gross approvals data shown for the major UK lenders.

Chart 2.3 Quoted interest rates on two-year fixed-rate mortgages(a) Per cent

6 75% loan-to-value 4

Two-year swap rate(d)

2

0 2007

08

09

(a) The Bank’s quoted interest rates series comprise data from up to 31 monetary financial institutions. (b) Series finishes in April 2008, as thereafter only two or fewer products are offered. (c) Series is only available on a consistent basis back to May 2008, as earlier periods require a greater degree of estimation, and is not published for March-May 2009 as only two or fewer products were offered in that period. The June observation is marked with the diamond. (d) End-month rate.

Chart 2.4 Credit Conditions Survey: mortgage credit availability(a)(b) Net percentage balances Overall credit availability

Availability to borrowers with more than 75% loan to value

As with corporate lending, it is difficult to identify precisely the separate influences on overall mortgage lending of changes in the supply of and demand for mortgages. On the supply side, in the Credit Conditions Survey a net balance of lenders reported that there had been an increase in the availability of secured credit to households over the three months to mid-June, the first significantly positive balance since the survey began in 2007 Q2 (Chart 2.4). As with lending to businesses, that partly reflects the impact of the lending commitments made under the Government’s APS. The major UK lenders have reported that approval rates for mortgages have edged higher in recent months. Over the past few months contacts of the Banks’ regional Agents have reported an increase in the range of mortgage products available. And according to Moneyfacts Group, the number of 90%-plus LTV mortgages available increased slightly in both May and June, though remains only around one tenth of the number on offer a year ago. Moreover, the extra cost of borrowing at 90% LTV relative to 75% LTV is much higher than prior to the onset of the financial crisis (Chart 2.3).

8

90% loan-to-value(c)

95% loan-to-value(b)

Supply and demand

60

Changes in credit score criteria 40 20

+

Some major UK lenders have reported that signs of stabilisation in housing market activity and prices, and the margins prevailing on higher LTV products, have made them a little more inclined to lend at higher LTV ratios. Consistent with that, a net balance of lenders in the Credit Conditions Survey expected to increase the availability of mortgages to higher (>75%) LTV borrowers in 2009 Q3, alongside a slight easing in credit scoring criteria (Chart 2.4). The slight increase in risk appetite may have been supported by lower than expected increases in default rates on secured lending over the past three months. In discussions with the Bank, most lenders said they had become less pessimistic about defaults since the beginning of the year. And in June the Council of Mortgage Lenders revised down its projections for arrears and repossessions in 2009, citing the beneficial effects of low interest rates and increased forbearance by the lenders.

0 n.a.

– 20 40 60 Tighter criteria

Q2 Q4 Q2 Q4 Q2 Q2 Q4 Q2 Q4 Q2 Q2 Q4 Q2 Q4 Q2 08 09 2007 08 09 2007 08 09 2007

80

(a) See footnote to Chart 1.3. (b) A positive balance indicates that more credit is available or credit score criteria are less strict. The balance for overall credit availability in 2007 Q3 was 0.1 but is not visible on the chart.

In the Credit Conditions Survey, demand for mortgages for house purchase was reported to have increased in the three months to mid-June. The Royal Institution of Chartered Surveyors’ (RICS) new buyer enquiries balance has continued to rise in recent months, indicating that demand for mortgages for house purchase may rise further. And the major UK lenders have reported rising applications for house purchase mortgages. But lenders and the Bank’s regional Agents have said that difficulties in valuing properties in present market

Section 2 Mortgage lending

Chart 2.5 Housing market activity(a) Percentage change three months on previous three months

Net percentage balance

60

75 RICS new buyer enquiries(b) (right-hand scale)

40

50

Flow of mortgage lending for house purchase(c) (left-hand scale) 20

25

+

+

0

9

conditions can lead to delays in the mortgage approvals process. And some lenders and estate agents have reported that this has contributed to breaks in housing transaction chains, so that approved mortgages are more than usually prone to cancellation before lending is advanced. Chart 2.5 illustrates that the upturn in mortgage lending for house purchase has lagged the increase in new buyer enquiries and approvals by more than usual.

0

–

– 20

25 Mortgage approvals for house purchase(c) (left-hand scale)

40

50

60 2004

05

06

07

08

09

75

Sources: Bank of England and Royal Institution of Chartered Surveyors. (a) Seasonally adjusted data. In housing transactions new buyer enquiries are followed by mortgage approvals and then mortgage lending, if the transactions are completed. To illustrate the prospects for mortgage lending for house purchase, and reflecting the typical lags, new buyer enquiries have been moved forward by four months, and approvals moved forward by one month, relative to the flow of mortgage lending for house purchase. For more information on these typical lags see Thwaites, G and Wood, R (2003), ‘The measurement of house prices’, Bank of England Quarterly Bulletin, Spring, pages 38–46. (b) Net percentage balance of respondents saying that enquiries had increased over the previous month, less those saying enquiries had decreased. (c) In gross terms. Data are for the major UK lenders and in 2009 Lending Panel data are used. For an explanation of how mortgage lending for house purchase is estimated prior to 2009, see footnote (a) from Chart 2.1.

Demand for new mortgages to refinance existing mortgages (remortgaging) had weakened further over the past three months, according to the Credit Conditions Survey. Standard variable rates, to which mortgages tend to revert once fixed or discounted terms expire, have remained low relative to the rates available on new mortgages, reducing the incentive for borrowers to remortgage. In the Credit Conditions Survey lenders expected remortgaging activity to remain weak in the near future.

10

Trends in Lending July 2009

3 Consumer credit Net flows of consumer credit remained weak in May. Within the total, net consumer credit excluding credit cards remained subdued, but was positive for the first time since December 2008. Spreads on credit card lending have continued to rise, reflecting higher actual and expected default rates. None of the major UK lenders reported any plans to expand the availability of consumer credit, and they had yet to detect any significant signs of an increase in demand. Recent lending data

Table 3.A Consumer credit(a) Averages

2009

2007 2008 Net monthly flow (£ billions)

Jan.

Feb.

Mar.

Apr. May

1.1

1.0

0.1

0.1

0.0

0.2

0.3

Three-month annualised growth rate (per cent)

6.4

5.3

2.1

0.9

0.4

0.6

0.9

Twelve-month growth rate (per cent)

6.1

6.3

4.7

3.6

3.1

2.8

2.3

(a) Unsecured lending by monetary financial institutions and other lenders to UK individuals. Seasonally adjusted data. Sterling lending only.

Other consumer credit Credit card Total

Consumer credit pricing Effective interest rates on overdrafts and personal loans have fallen in recent months, though by much less than Bank Rate and Libor. By contrast, rates on credit cards have remained broadly unchanged. This widening in spreads is reported to reflect in part lenders’ perceptions of heightened credit risk on consumer credit. In the 2009 Q2 Credit Conditions Survey default rates and losses on consumer credit were reported to have risen over the past three months, and further increases were anticipated. Chart 3.2 shows how, for credit cards, this has coincided with the sharp increase in spreads.

Chart 3.1 Consumer credit(a) £ billions

Total net consumer credit flows remained weak in May (Table 3.A), so the twelve-month growth rate in the stock of consumer credit continued to drift down. Within the total, net consumer credit excluding credit cards remained subdued, but was positive for the first time since December 2008 (Chart 3.1). The major UK lenders in aggregate also reported a very slight improvement in net lending via personal loans in June.

2.5

2.0

1.5

1.0

0.5

+ 0.0

2007

08

09

–

Supply and demand

0.5

A net balance of lenders in the Credit Conditions Survey reported that they had reduced the availability of consumer credit over the past three months, and by more than they had anticipated. Over the next three months, lenders expected credit limits to be reduced and credit scoring criteria to be tightened further. In discussions with the Bank, none of the major UK lenders indicated any plans to expand the availability of consumer credit.

(a) Flow of net unsecured lending by monetary financial institutions and other lenders to UK individuals. Seasonally adjusted data. Sterling lending only.

Chart 3.2 Credit Conditions Survey: change in default rates on credit cards(a)(b) 70

Net percentage balances Spread of quoted credit card rates over three-month Libor(c) (right-hand scale)

60 50

Percentage points

17 16 15

40

14

30

13

20

12

10

11

+ 0 –

10

10

9

20

8

30

7 Dec. June Dec. June 2007 08 09 (a) See footnote to Chart 1.3. (b) A positive balance indicates an increase in default rates. (c) The Bank’s quoted interest rates series comprise data from up to 31 monetary financial institutions. June

The tentative recovery in net consumer credit excluding credit cards might be consistent with the recent pick-up in private car sales, some of which is likely to have been financed by personal loans. According to the Society of Motor Manufacturers and Traders, new private car registrations in June were 4% higher than a year ago, the first positive annual growth rate since November 2007. But in discussions with the Bank, the major UK lenders had yet to detect any significant signs of an increase in demand for personal loans.

Glossary and other information

Abbreviations APS – Asset Protection Scheme (see below). CBI – Confederation of British Industry. CFO – chief financial officer. Libor – London interbank offered rate (see below). LTV – loan to value ratio (see below). M&A – mergers and acquisitions. ONS – Office for National Statistics. PNFCs – private non-financial corporations (see below). RICS – Royal Institution of Chartered Surveyors.

Glossary Asset Protection Scheme

A Government scheme that provides lenders with partial protection, in return for a fee, against credit losses on portfolios of assets. Bank Rate The official rate paid on commercial bank reserves by the Bank of England. Businesses Private non-financial corporations (see below). Consumer credit Borrowing by UK individuals to finance expenditure on goods and/or services. Consumer credit is split into two components: credit card lending and ‘other’ lending (mainly overdrafts and other loans/advances). Effective interest The weighted average of calculated rates interest rates on various types of deposit and loan accounts. The calculated annual rate is derived from the deposit or loan interest flow during the period, divided by the average stock of deposit or loan during the period. Facility An agreement in which a lender sets out the conditions on which it is prepared to commit to advance a specified amount to a borrower within a defined period. Gross lending The total value of loans advanced by an institution in a given period. Loan approvals Lenders’ firm offers to advance credit. Loan to value ratio Ratio of outstanding loan amount to the (LTV) market value of the asset against which the loan is secured (normally residential or commercial property). London interbank The rate of interest at which banks offered rate (Libor) borrow funds from each other, in marketable size, in the London interbank market. Major UK lenders Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland.

11

Monetary financial A statistical grouping comprising banks institutions and building societies. Mortgage lending Lending to households, secured against the value of their dwellings. Net lending The difference between gross lending and gross repayments of debt in a given period. Private All corporations whose primary activity is non-financial non-financial, and that are not controlled corporations by central or local government. Quoted interest The weighted average of a sample of rates advertised deposit and loan rates: weights calculated from Bank of England statistical collections. Reference rate The rate on which loans to businesses are set, with an agreed margin over the reference rate (typically these will be Bank Rate or Libor). Remortgaging A process whereby borrowers repay their current mortgage in favour of a new one secured on the same property. Swap rate The fixed rate of interest in a swap contract in which floating-rate interest payments are exchanged for fixed-rate interest payments. Swap rates are a key factor in the setting of fixed mortgage rates.

Symbols and conventions Except where otherwise stated, data are not seasonally adjusted and the source of data in charts and tables is the Bank of England. On the horizontal axes of graphs, larger ticks denote the first observation within the relevant period, eg data for the first quarter of the year.

© Bank of England 2009 ISSN: 2040-4042 (online)