Economic fears over lending fall

Thursday 28 June 2012

MORTGAGE repayments outstripped lending last month for the first time, banks have revealed.

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Vicky Shaw

The British Bankers' Association said lenders have also tightened their borrowing criteria due to the weak economy, and have put up their rates for new borrowers and more than one million existing ones.

Net mortgage lending fell by £73 million, the first reversal in the 16 years that records have been compiled by the association, which said households were focusing on paying down their debts.

The number of mortgage approvals for house purchases also slumped to its lowest level in 13 months, providing further evidence that it is getting tougher for people to take out a mortgage. There were 30,238 such approvals in May, worth £4.9 billion.There are hopes a "funding for lending" scheme announced by the Bank of England and the Treasury earlier this month could help kick-start lending.Analysts have said this may put the brakes on recent rate rises, although those currently unable to get a mortgage may see little improvement.There were also 18,678 loans approved for re-mortgaging, worth £2.6bn in May, the lowest number of loans since February.Lenders and estate agents have also reported a dip in activity following the end of a two-year stamp duty concession for first-time buyers in March, which bunched up sales and saw a rush of people trying to beat the deadline.Ed Stansfield, chief property economist at Capital Economics, said: "The drop in net lending can be seen as a natural by- product of the low interest rate environment."When interest rates are low, a higher proportion of the monthly payments made by a borrower with a capital and interest repayment mortgage are capital. Nevertheless, that does not seem to explain May's abrupt drop. "After all, if anything, mortgage interest rates have been drifting up in recent months."He added: "The implication seems to be that either lenders or borrowers, or potentially both, became more cautious in May."Mr Stansfield said the figures "seem to add to the evidence that activity across the economy is grinding to a halt as firms and households wait for events in the eurozone to come to a head".The figures also showed cautious consumers continued a long-term trend of repaying more on their credit cards than they spent in May, against a backdrop of squeezed household budgets and high unemployment.At £7bn, new spending on credit cards was slightly below the six-month average, while £7.5bn was repaid.Consumers also placed more than 50% more in cash Isas this spring than they did last year in their determination to seek out better returns on their savings.

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Economic fears over lending fall

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