Banks still reluctant to lend

Sarah Davidson

August 23, 2012

British Bankers’ Association statistics showed the banks’ net mortgage lending grew by 0.8% in the year to July while gross mortgage lending of £7.1bn in July was below the recent monthly average and reflected continued low levels of activity in the housing market.

The average house purchase approvalstands at £161,100 but due to expanded reporting within one banking group since the turn of the year, this cannot be directly compared with earlier trend figures.

Numbers of remortgaging approvals were some 41% lower than in July 2011 and approvals for other secured lending were 25% lower.

The outstanding level of unsecured borrowing from the banks has contracted by 2.9% over the year to July. Within that, credit card lending rose by 3.6%, so it is a contraction of 7.3% in other loans and advances which drives the overall decline.

Cash ISA inflows continue to be strong this year as households have looked to accounts paying better rates of interest, leading to a rise in all personal deposits of 5.4% over the year to July.

BBA statistics director David Dooks said: “We continue to see the household sector increasing deposits and repaying debt. High street bank ISAs continue to attract strong personal deposits while repayments of both mortgages and unsecured lending have grown strongly this year as households seek to reduce borrowing and borrowing costs.

“Companies are reluctant to borrow or invest new funds while domestic and international trading activities remain subdued or uncertain. With larger firms also using alternative funding from corporate bonds, bank borrowing levels are contracting”.

Matthew Pointon, property economist at Capital Economics, said: “The rebound in July’s mortgage approval figures was expected, given that June’s figures had been adversely affected by the extra Bank Holiday and appalling weather.

“But these are still very depressed figures – in both value and volume terms mortgage lending remains over 8% below the levels seen in May.

“In any event, these figures illustrate that credit conditions in the mortgage market remain exceedingly tight. And even if the FLS is successful, there are as yet no signs that buyer confidence is returning to drive an increase in housing demand.”

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