Banks and building societies are set to further tighten the screws on borrowers as a Bank of England survey revealed a growing reluctance to lend and surprise at the rising rate of customers defaulting on home loan payments.

The Bank's survey on credit conditions showed that 47 per cent of lenders had cut mortgage availability in the three months to June while a balance of 22 per cent of banks expected further reductions in the future.

Lenders said they had reduced the supply of credit because of their expectations for the housing market, the changing economic outlook, changes in their own appetite for risk and their own continuing difficulties in getting wholesale funding.

Today's survey also revealed that lenders have been taken by surprise by the rate of borrowers defaulting on their mortgage payments.

The numbers missing home loan repayments and the ensuing losses rose in the second quarter, and increased by slightly more than banks and building societies expected when asked about prospects in the first quarter.

The latest Bank survey shows an across-the-board souring in conditions in the credit markets, with lenders bracing for a further rise in defaults and losses in the third quarter.

Banks were also negatively surprised by the rate at which borrowers were defaulting on unsecured credit lines, mainly non-credit card debt such as personal loans and car loans.

One surprise in the survey was that demand from the public for buy-to-let loans was stronger than expected.

The supply and price of credit is crucial in determining consumption and capital spending, two key drivers for the economy.

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