BBA figures show average net lending for past six months is £0 – with repayments outweighing new lending by £982m in February
More mortgages were repaid than taken out in February, in a worrying sign for the government which is trying to kickstart the moribund housing market.
Mortgage lending slumped by the biggest monthly amount in more than 15 years last month as repayments by borrowers outweighed new lending by almost £1bn, if seasonal adjustments are stripped out of the February data from the British Bankers’ Association (BBA). Over a six months the figures showed no growth at all.
The BBA said £7.8bn of home loans were granted during the month, but low interest rates have allowed borrowers to make high capital repayments. When these are taken into account, net lending by banks fell by £982m over the month.
On this non-seasonally adjusted basis, the figures show net repayments every month between December and February, and the average net lending figure for the six months to February is zero.
Ian Gordon, banks analyst at Investec, described the data as “absolutely dire”. “Negative net lending in February of £982m is the worst on record – ever – since BBA records began in 1997, and it is also the first time that net mortgage lending has remained negative for three consecutive months,” Gordon said.
The BBA pointed out that on a seasonally adjusted basis, taking account of the fact February is a short month and often afflicted by poor whether, that the net lending figure contracted by a much smaller £65m in February.
Even on a seasonally adjusted basis, the number of loans granted fell to 30,506 from 31,983 in January – it was the lowest level since July 2012, and down 6.3% year-on-year.
The figures suggest the government’s Funding for Lending scheme, launched in August to kick-start the housing market by offering cheap loans to banks and building societies, is having little impact on lending by banks.
Howard Archer, chief UK economist at IHS Global Insight, said the majority of recent survey evidence had suggested activity in the housing market had “firmed modestly overall in recent months”.
However, he added: “It remains hard to see house prices making a decisive move upward in 2013 given the still difficult and uncertain economic environment. And the slip in mortgage approvals in February reported by the BBA data is a reminder that periodic relapses in housing market activity and prices remain highly possible.”
The BBA’s figures show that as well as clearing mortgages, consumers have been paying into savings accounts – the value of personal deposits rose by 6.1% over the year to February.
The amount of outstanding unsecured borrowing fell by 0.9% over the same period. Credit card borrowing rose by 6.7% but was offset by a fall in the amount borrowed through personal loans and overdrafts.
One of the centrepiece policies in George Osborne’s budget last week was a plan to offer interest free loans and guarantees to support £130bn of new mortgages from 2014. In addition the Help to Buy sheme will allow people to obtain a 20% interest-free loan from the government, as long as they put down a 5% deposit and buy a newly-built property. The chancellor wants to put more fuel into home ownership which has fallen in the last 10 years.