Are we heading towards a second credit crunch?

Do new Bank of England figures mean that we are heading for a second credit crunch?

Problems within the US property market and the ensuing restriction of lending to people in nations across the world are believed by many to have been the catalyst for the UK's worst post-war recession.

While the country officially left recession in the final three months of 2009, a new report by the Bank of England suggests that a second credit crunch could be on the horizon.

In its Credit Conditions Survey for the second quarter of this year, carried out between May 20th and June 9th, the Bank predicted that lending could be set to decrease in the coming three months.

The availability of secured credit – lending which is done on the basis that collateral is laid down first – increased during the first three months of the year, which was said to be down to a combination of the expectations for house prices and a desire for institutions to increase their market share.

The availability of unsecured credit – that issued without collateral - remained unchanged.

Looking ahead in terms of lending to households, generally unsecured lending was expected to grow, as financial institutions increased their "risk appetite".

Since the credit crunch hit, lenders have been extremely cautious in terms of whom they provide credit to and there are signs that this may be beginning to change slowly for some types of lending.

For the first time since the second quarter of 2008, it was reported that the criteria used to decide if a person was eligible for a credit card had been relaxed.

In contrast to this, the criteria for those looking for unsecured credit not in the form of a credit card, for example a loan, tightened during the period and is expected to tighten again over the next three months.

The survey said that this was due to concerns about the wholesale funding market, which relates to the money that banks are willing to lend each other.

Predictions were made by the Bank that secured lending, which is traditionally used by those who have had a poor credit history or have not sought credit before, would decrease over the next few months. And this could be bad news for first time buyers.

It was also revealed that the increase in secured lending was largely for those with a high loan-to-value (LTV) ratio – those that are borrowing money equivalent to a higher percentage of their property value – than those with a low LTV.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said that the figures from the Bank suggest that the growth that has been seen in lending "has not been driven by any change in the attitude to risk".

"The likelihood is that the finance for the property market will continue to be in short supply for some time to come," he added.

Melanie Bien, director at mortgage broker Private Finance, had a much more extreme view of the situation.

She told the Daily Telegraph: "Just when it looked as though lending conditions were starting to ease, the Bank is warning that we could face a second credit crunch. For those borrowers who are already struggling to secure mortgage finance, this is nothing short of disaster."

Lending to the corporate sector both increased in the first quarter of 2010 and is expected to grow even further in the next three months, which is positive news for the economy.

Other organisations have been weighing in on the issues surrounding lending, including the Financial Services Authority, which is calling for a public debate on how much mortgage finance should be easily available.

Consumer affairs minister Edward Davey also announced recently that the government is due to undertake a review of consumer credit in the UK, which in part will help "cut unnecessary regulatory burdens, which increase costs and stifle competition".

However, in the short term, there is not likely to be an overnight restriction on lending and, as always, people should give all options serious consideration before taking action.