Home loans double as personal borrowing falls

Published 24th Dec 2009

Mortgage lending rose at its fastest rate since February in November, but credit card spending and demand for personal loans dwindled, as households reassessed their finances.

Monthly figures from the British Bankers Association showed that the number of home purchase loans approved more than doubled compared to a year ago, to reach a 25-month high of 44,713 mortgage applications being given the rubber stamp. But the BBA warned that this uplift reflect the weakness in the market at this time last year, when approvals ground to a halt, rather than indicating a much stronger market now. Net mortgage lending rose by £3.3 billion in November after a rise of £3. 2 billion in October, the highest since February.

“In the housing sector, prices have continued to edge up and approvals for house purchases are now back at a similar level to two years ago,” said David Dooks, the BBA statistics director.

New spending and repayments on credit cards both declined compared to a year ago, and demand for personal loans was lower by nearly 50 per cent. Net consumer credit fell by £309 million over the period, after falling £183m in October, and net credit card lending fell by a modest £217 million. Households upped their repayments on loans and overdrafts, clearing £526 million of debt.

"The further marked net repayment in consumer credit in November was clearly the consequence of many consumers' desire to reduce their debt, low demand for credit and a lack of availability of unsecured credit from banks. It is yet another example of consumers looking to improve their financial situations in the current difficult and worrying economic environment" said Howard Archer, chief economist at IHS Global Insight.

The figures are in line with other recent surveys showing record low interest rates have helped stabilise Britain’s housing market after sharp price declines last year.

Separately, the first official figures on how the service sector performed early in the fourth quater showed that growth slowed to 0.1 per cent in October, compared to 0.5 per cent in September.

However this marked the first time that service sector, which accounts for 76 per cent of UK output, had expanded for two consecutive months since February.

The Office for National Statistics said that the slowdown in the month-on-month rate of service sector growth in October was driven by a 0.4 per cent fall in distribution - businesses such as retail - which grew 3.2 per cent in September.

The ONS also reported that productivity across all sectors of the economy fell 0.1 per cent in the third quarter of the year after a 0.3 per cent rise in the second quarter. Year-on-year, productivity was down 3.1 per cent in Q3 compared to a 3.5 per cent fall in the second quarter.

Mr Archer said this increased the chances of Britain coming out of recession in the fourth quarter.

He added: "The substantial overall cutting of capital spending by companies during the recession, and current still relatively low investment intentions, could have serious negative repercussions for UK productivity. Hopefully though, the need for many companies to adapt to survive the recession has left them leaner and fitter to compete in the future."

Source: ' Times '

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