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Lenders set to increase interest-free periods on credit cards

·3-min read

Households could be offered longer interest-free periods on credit cards over the summer, according to a survey of lenders.

Banks and building societies also anticipate that mortgage availability to households will rise, according to the survey published by the Bank of England.

The Bank’s Credit Conditions Survey is carried out every quarter to help it understand trends and maintain financial stability.

Lenders are asked to report changes in the previous three months and their expectations for the next three months. The latest survey was carried out between June 1 and 18.

Those taking part reported that the length of interest-free periods on credit cards, for both balance transfers and purchases, had increased in the previous three months. Further increases were also expected in the next three months.

Mortgage availability also increased in the three months to the end of May and was expected by lenders to increase further in the three months to the end of August.

Low-deposit mortgages vanished from the market last year amid concerns about the impact of coronavirus on the economy. But recently, lenders have returned to low-deposit lending, helped by the launch of a Government-backed mortgage guarantee scheme.

Demand for mortgages had increased in recent months but was expected to decrease for house purchase in the next three months, the report said.

A stamp duty holiday, which helped to underpin demand, was tapered at the start of July and will end this autumn.

Default rates on mortgages and other non-mortgage lending to households were expected to increase in the next three months.

Commenting on the report, Tomer Aboody, director of property lender MT Finance, said: “While rates remain low, the housing market will stay buoyant and further price increases are likely as borrowers stretch to buy their dream home.”

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said: “Not surprisingly, lending in the second quarter remained robust on the back of continuing demand for housing from buyers keen to take advantage of the stamp duty concession before it began to taper off at the end of June.”

He added: “On the ground, we have found a large number of potential home movers who were frustrated by the frenzied activity of the last few months will try to take advantage of calmer conditions in future.”

The Bank’s report also said that default rates for small and medium-sized businesses borrowing money were expected to increase in the next three months, while it was thought that default rates for large businesses would remain unchanged.

Demand for corporate lending from small and large businesses was expected to increase in the coming months, but for medium-sized businesses lenders expected it to remain unchanged.

Lenders reported that the overall availability of credit to the corporate sector increased slightly in recent months and was expected to remain unchanged in the next few months across all firm sizes.

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: “Those who have been insulated from the effects of the pandemic are likely to be able to cash in on the mortgage price war by snapping up a cut-price re-mortgage deal.”

“However, it’s not all going swimmingly for borrowers.

“As the furlough scheme is phased out over the summer, there’s a good chance that there will be job losses, and people who have been struggling to keep their head above water will finally succumb.

“At the end of July, the final mortgage holidays will come to an end too, so there won’t be help from industry-wide schemes. It means borrowers will have to rely on whatever they can arrange with their lender.”

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