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Hurrah! The Credit Crunch Is Over !

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Another flurry of completely contradictory articles in the press today house prices are up, no they are down, the market is recovering, no it isn't it will take to 2020 but things aren't so bad , but then again yes they are ..............

Now Lovemoney's contribution !!

Hurrah! The crunch on credit is finally starting to ease for lenders - but what does this mean for you and me?

I get more confused by the day!

The article is based around the:

Bank of England's quarterly Credit Conditions Survey.

It might not sound like a riveting read, but among the doom and gloom there was a ray of hope and an indication that we are beginning to experience the end of the credit crunch.

What's the good news?

Over the past three months, lenders have increased the availability of secured credit (mortgages and secured loans) to households - the first time since 2007. According to the Bank of England, this is because lenders have had increased availability of funds at lower costs. The increase also partly reflects the lending commitments made to the Government as a condition of lenders being allowed to participate in the Asset Protection Scheme.

But more importantly, lenders expect a further increase in the availability of secured credit to households in the next three months.

In other words, the credit markets have been slightly less crunched recently and this trend is expected to continue, resulting in more mortgages.

So how does this article in Lovemoney compare to the article in Reuters also about the Credit Conditions Survey?

LONDON (Reuters) - Lenders expect to make credit more easily available to households and businesses over the coming quarter but are not expecting much of a pick-up in demand, a survey by the Bank of England showed on Thursday.

The quarterly credit conditions survey showed government initiatives to boost lending had enjoyed some success -- secured credit to households increased in the second quarter for the first time since the third quarter of 2007.

But lenders expected spreads on new mortgage lending to remain wide, meaning borrowers would not see the full benefit of record low interest rates. And spreads on corporate lending were expected to widen further.

"While there are some encouraging signs in the credit conditions survey, the UK is certainly not out of the woods yet," said Colin Ellis, an economist at Daiwa.

"As long as credit scores continue to tighten, that will make it harder for households to get funding, which is likely to restrict activity, particularly in the housing market, for some time."

Britain's central bank slashed interest rates to a record low 0.5 percent in March and has been pumping cash into the economy by buying assets, mainly government bonds, with newly created money.

So far, the BoE has bought just over 100 billion pounds of assets under its quantitative easing programme, putting it on track to complete its 125 billion pound target by the end of the month.

Economists are split on whether the central bank will extend its QE programme but all agree that credit conditions will be key to that decision.

Although mortgage approvals have picked up from record lows hit last year, hard indicators of lending remain weak. David Miles, a new recruit to the central bank's monetary policy committee, noted that bank lending remained low and a sustained pick-up was not guaranteed.

"The prospect of a rapid return to growth doesn't seem a highly probable outcome. But there are reasons for thinking the period of rapid declines in output are behind us," Miles told a Treasury committee.

The BoE survey noted that concerns about the economic outlook had continued to bear down on credit availability in the second quarter, but the impact had been less than in previous quarters and lenders had expected to increase credit further in the coming quarter.

However, while lenders expected demand for loans from small businesses to pick up, they did not expect any increase in demand for mortgages.

There was also an expectation that default rates would continue to rise and little appetite to cut spreads -- the margin over the Bank rate that lenders charge for credit.

"The survey was not overly encouraging about the outlook for bank lending and therefore the prospects for overall economic growth," said Vicky Redwood at Capital Economics.

"The improvement in the balances may just have reflected the lending commitments made by lenders participating in the Asset Protection Scheme, rather than a fundamental shift in lenders' risk appetite."

So is it "Hurrah!! Credit Crunch is Over" when you consider :

* The final £25bn of QE is being delayed for now at a time when everyone was expecting an announcement that it would be extended

* Last week the Bank of England declared that UK banks might need to cut their lending by £500 billion within 4 years as theGovernmental support will be withdrawn.

The report on financial stability published by the Bank on June 26th suggests that the widening financial gap of British lenders coupled with the reduction in the Bank of England’s assistance will mean that lenders will be obliged to look for additional sources of funding. According to the central bank, some of the shortfall was met as the banks have sold their debt, which was backed by the governmental Credit Guarantee Scheme that amounted to £250 billion.

The balance sheets of British banks have significantly grown in the past years; for instance, the balance sheet of the Royal Bank of Scotland Group has reached £2.4 trillion in 2008 – the figure exceeds the one of the UK economy as a whole. At the moment, the UK Government possesses the major share of the RBS Group and 43% of the Lloyds Banking Group.

Analysts are determined that the Government’s plans on the increased banks’ lending towards the population are in controversy with its requirement to cut banks’ lending by £500 billion.

However, the Bank of England is confident that the measure is a must. In 2008, the difference between banks’ lending and deposits was constantly growing and reached as much as £800 billion with almost 50% of the amount being backed by residential property securities. The Lloyds banking Group is expected to be hit the hardest as it mainly relies upon the wholesale funding.

Another important change, which is reflected in the Bank of England’s report, is associated with financial institutions that act like banks. The Bank of England wants these organizations to be treated and regulated as banks.

* UK Can't Afford Another Fiscal Rescue IMF

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