Credit crunch to last 6 months, say 64% of UK lending institutions

No less than 64% of the UK's top lending institutions are predicting that the current credit crunch will last for six months, with over 35% saying it will last for at least a year, according to a survey by UK consultancy firm GVA Grimley. The Bank Lending Survey, carried out in December 2007, polled banks with total annual loans to the property sector of close to GBP 35 bn (EUR 42.8 bn).

The survey also revealed an increase in margins over base, with owner-occupied property seeing the largest increase in the margin of 40 basis points, from 1.4% to 1.8%. Figures for investment property suggest that margins have moved upwards by around 30 basis points, typically from around 1.1% to around 1.4%, depending on the property sector, GVA Grimley said.

When addressing loan-to-value ratios, the results show that for investment property they have reduced from an average of 83% of capital value as at June 2007 to 75% in December 2007.

Tim Crossley Smith, head of valuation at GVA Grimley in London, said that despite the recent reduction in the UK base rate and the 3-month LIBOR returning closer to pre-crunch levels, there appears to be a high level of uncertainty over how the overall financial situation will develop over the next three months. However, it seems that lenders believe that conditions will get a little worse before they begin to improve.

Lenders expect to see a reduction in lending in the first six months of 2008 compared with the same period in 2007 due to a combination of reduced investor demand and their own lending policy, Crossley Smith said.