Lenders believe that credit availability will decrease in the first quarter of this year, a new survey from the Bank of England (BoE) shows.

In its latest credit conditions questionnaire, a net percentage balance of -24.1 is given when asked about availability in Q1 2023 on the back of a -33.6 figure quoted for the three month period ending 21 November to 9 December 2022, which is when the survey was provided.

A net percentage balance of -55.1 attributes the changing economic outlook as the reason for this further tightening, while a net percentage balance of -27.6 is given to a changing appetite for risk.

Meanwhile, a net percentage balance of 4.3 is attached to ‘tighter wholesale funding conditions’ as a factor for credit availability in the first quarter of 2023 – a turnaround from the -35.8 figure quoted for Q4 2022.

The questionnaire also show a net percentage balance of -75.4 when lenders were asked how demand changed, showing a significant drop in the desire for credit, while estimations for demand in the next three months comes to a net percentage balance of -14.5 – suggesting it will continue to decrease.

On the other hand, for remortgages, a net percentage balance of -17.4 is quoted for demand in the final quarter of 2022 but a net percentage balance of 5.6 for the following three months is quoted, indicating a slight increase in demand remortgaging.

And lenders said that the difference between lending prices and the interest rate or swap rates had widened at the end of 2022 – a net percentage balance of -19 is given for this factor – and this trend is set to continue into Spring 2023, with a net percentage balance of -8.4 stated.

Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “Mortgage demand plummeted at the kind of rate we saw when the market was effectively shut at the start of the pandemic. The shock of the mini-budget, and the carnage it caused in the mortgage market, meant buyers faced massive rate hikes that left their plans in tatters.

“More recently, rates have been dropping, but they remain significantly higher than before the chaos unfolded. Buyers are also reeling from the shock of the rate rises, which put a real dent in their confidence.

“So, although the fall in mortgage demand isn’t expected to be anywhere near so dramatic in the first three months of the year, it’s still expected to be down again. It will take a while for all of this to feed into the figures on house prices, but when it does, we can expect some significant changes.”