For homeowners seeking home improvement loans, the news is certainly bad. Although they may have perfect credit and be considered a qualified buyer, banks are simply tightening up their restrictions. Since home improvement loans are typically second recoupment, banks just aren’t willing to take the risk in today’s housing market. “When people with what looks like very good qualifications can’t get access to credit, that is the classic credit crunch,” said Nigel Gault, senior US economist for Global Insight, a Waltham consulting firm. “If people don’t get credit they can’t spend, and if they can’t spend they don’t generate the incomes for other people, and the economy looks worse. Then you’re in a very nasty spiral.”
Falling property values are also affecting the availability of home improvement loans. In many areas in the US and the UK, the loans are simply worth more than the property. This has created a situation that is causing many homeowners to default on their home improvement loans and it is also affecting those who need to refinance. “People want to refinance from an adjustable mortgage to a fixed rate, but when we do an appraisal of the properties the values aren’t there,” said Sushil Tuli, president of Leader Bank in Arlington.
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