Lending to UK companies nose-dive, while trend for paying off mortgage capital and credit card debt continues
The number of mortgages approved for house purchase edged to a ten-month high in November 2012, but the ongoing trend for paying off mortgage capital and credit card debt continued.
The 33,634 mortgages approved by high street lenders in November was below the 34,137 seen in November 2011, but marginally higher than the 33,128 recorded the previous month and is the highest figure since January 2012, figures from the British Bankers’ Association (BBA) show.
But a lack of consumer confidence caused by weak economic growth in the UK and the ongoing eurozone crisis means most homeowners feel more comfortable paying down their debt than increasing their liabilities – consumers re-paid £7.5bn of mortgage debt in November against new mortgage borrowing of £7.7bn.
Also, new spending on credit cards of £7.3bn in November was offset by £7.5bn made in repayments during the month.
BBA statistics director, David Dooks, said: “Households are continuing to repay virtually as much as they borrow and, as people hold on to cash, deposits are growing by 6% annually. The situation is not dissimilar in the business world – businesses are holding back investment or expansion plans and building up cash reserves.”
Howard Archer, chief economist at IHS Global Insight, added: “The November figures need to be put into perspective, as mortgage approvals are still low compared to past norms. While mortgage interest payments as a percentage of disposable income are currently very low, other affordability measures are not so favourable with the house price/earnings ratio above its long-term average.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “In an uncertain world, it makes sense to take control where you can – and for many, that is by reducing the levels of debt they are exposed to. Record low interest rates have resulted in some of the cheapest mortgages we have ever seen so it is no surprise that lending volumes are slowly ticking up month by month and that the year has seen stronger lending volumes than initially forecast.”
Mortgage brokers claim that the biggest barrier to home ownership remains the deposit, with first-time buyers continuing to struggle to save the tens of thousands of pounds required to get on the housing ladder. “The government’s Funding for Lending should make this easier next year, resulting in more choice at higher loans-to-value and better rates,” Harris added.
Lending by UK banks to companies nose-dived in November, the BBA said, a sign that the government’s Funding for Lending scheme is failing to have any positive impact in raising lending to companies.
Net lending to companies fell by £3.1bn in November, following October’s increase of £268m. This was the sharpest fall in lending to companies since June 2012 and far higher than the average monthly fall of £934m seen during the previous six months.