Lenders see credit availability improving

LONDON (Reuters) - Lenders expect to make credit more easily available to households and businesses in the next few months, although demand is likely to remain muted, a survey by the Bank of England showed on Thursday.

The Bank's credit conditions survey showed that lenders had tightened the availability of secured credit to households in the first three months of this year, due to risk aversion and expectations of a further fall in house prices.

However, lenders said they expected to increase the availability of loans in the second quarter, both to households and firns.

"The economic outlook was not longer expected to be a factor bearing down on credit availability," the survey said.

"Improvements in the cost and availability of funds were expected to support increased credit availability over the next three months."

The survey also showed that demand for mortgages had fallen over the last three months and that lenders expected it to decline further in the coming months.

The cost of borrowing rose significantly for households and businesses in the first three months of 2009, despite sharp cuts in interest rates and government schemes to promote lending.

"Overall spreads on secured lending to households were reported to have widened over the past three months, significantly more than expected," the survey said.

"Lenders reported a further widening of spreads on corporate lending. They expected spreads to increase further."