Lending to individuals is on the up, driven by mortgages, BoE figures show, but business lending hits a slump
Lending to individuals rose in April, but figures from the Bank of England showed a sharp fall in the amount of borrowing done by businesses.
Non-financial firms paid off £3bn of loans (including overdrafts) over the month, compared to an average monthly repayment of £1.3bn over the previous six months.
Year-on-year, borrowing contracted by 4%, while among small- and medium-sized enterprises (SMEs) it fell by 3.3%.
While lending to businesses fell, the Bank’s figures showed a pick-up in consumer credit in April, with total lending to individuals increasing by £1.4bn compared to an average monthly increase of £1bn over the previous six months.
This was buoyed by an increase in mortgage lending, which was up £0.9bn during the month. The number of loans approved for house purchase reached a three-month high of 53,710, while remortgage figures reached 30,313 – higher than the previous six-month average.
The figures are the latest to suggest an upturn in the property market following government efforts to boost mortgage availability through its Funding for Lending scheme and, more recently, the launch of the Help to Buy scheme, which offers equity loans to buyers.
On Thursday, Nationwide building society reported a 0.4% rise in house prices in May, and said there were “reasons for optimism” that activity would continue to pick up.
However, while Funding for Lending does seem to have helped the mortgage market, Howard Archer, chief UK economist at IHS Global Insight, said the further drop in net lending to businesses added to the evidence that it has so far failed in its other purpose, to boost loans to companies.
The scheme was extended in April, with an emphasis on SMEs, but Archer said: “How much companies want to borrow going forward remains questionable, but it is important for UK growth hopes that all companies who are in decent shape and who do want to borrow – whether it be to support their operations, lift investment, or explore new markets – can do so, and at a non-punishing interest rate.
“This applies to all companies, whatever their size.”
Separate figures from the Building Societies Association (BSA) showed its members have been increasing their share of the mortgage market over the past year, with lending by mutuals accounting for 26% of gross lending in April, compared with 21% in April 2012.
The BSA said that in the first four months of 2013 mortgage balances at mutuals had increased by £2.8bn, while balances at other lenders had fallen by £3.1bn. Gross mortgage lending was up by 55% year-on-year at £3.2bn, while net mortgage lending increased from £0.2bn in April 2012 to £0.9bn.
However, the figures are skewed by the stamp duty holiday on properties costing up to £250,000 that ended in March 2012 and led to a quiet April in the mortgage market.