Capital Economics believes that the latest Bank of England’s (BoE) credit condition survey suggests that credit availability for the housing and commercial property sectors is likely to continue to rise, albeit at a modest rate.

Residential mortgage default rates fell for the third consecutive quarter in Q1 2010 although lenders had predicted an increase in the previous survey. Defaults are also not expected to rise significantly in Q2.

Although mortgage availability is expected to increase and loan-to-values (LTVs) ratios are likely to rise in the next three months, lenders believe that the recovery is not secure and that house prices may fall from their current levels.

Kelvin Davidson, property economist at Capital Economics, said: “ The survey suggests that mortgage approvals could recover slightly in the near-term, though the rise is unlikely to be dramatic and remains very dependent on the economy not suffering a lurch back into recession.”

The commercial sector also is seeing some stability in default rates although lenders have indicated that there is some risk as borrowers covenants could weaken further. On a positive note lenders reported a rise in credit availability during Q1 2010 and an increase in Q2.

Davidson said: “Although the history of this survey is fairly short, lenders’ expectations for any change in commercial property credit availability have tended to have been too optimistic in the past.”