Broken rungs on the property ladder

How bad are things looking in Britain? Well, there’s the “mortgage famine” underway:

The Bank of England’s gloomy outlook in its Credit Conditions survey follows a recent rush by banks to pull mortgage offers as they seek to conserve cash in the face of the credit crunch which has curbed their ability to raise wholesale funding. This week First Direct abandoned offering home loans to any but existing customers.

The Financial Times reports that “As many as one in three housing deals are falling through because buyers cannot get the mortgage they need as more lenders retreat from the market.”

And consumers, already the most indebted per capita in the developed world, are taking on more debt to cover obligations such as mortgages and existing loans:

Unsecured personal borrowing soared by £2.4 billion in February, the biggest monthly rise for more than five years, according to Bank of England figures released yesterday. A smaller rise of £900 million was recorded in January.

It’s not just the consumer in trouble, of course — if consumers are feeling squeezed, so are businesses:

In another worrying trend, banks are also reporting being wrong-footed by the speed at which companies are failing to meeting interest bills on loans. Default rates by medium-sized and large companies “picked up more sharply than expected over the past three months,” the Bank said, adding that default rates were expected to rise further in the next quarter.

Prices declined slightly in the first quarter, but if IMF estimates are accurate, there’s a lot more pain to come: Housing are overpriced by a third, says IMF.

It’s the asset bubble, stupid.