Residential lending up but lending to businesses down

Nia Williams

March 18, 2010

The flow of net mortgage lending by all UK-resident mortgage lenders rose in January, despite a decline in gross mortgage lending. Gross lending for house purchase rebounded somewhat in February, according to data from the major UK lenders, though their approvals for house purchase fell slightly further after sharp falls in January. The mortgage arrears rate fell further in 2009 Q4 and some major UK lenders expected mortgage arrears rates to be broadly stable in the coming months. The overall effective rate on new mortgages fell slightly in January and the major UK lenders continued to report some downward pressure on mortgage pricing due to increasing competition to lend.

The stock of lending to businesses has fallen in recent months including for lending to small and medium-sized enterprises. Indicators of corporate distress, such as the write-off rate, have risen by less than in the early 1990s and were lower than some major UK lenders expected. Contacts of the Bank’s Agents reported that the overall availability of credit continued to improve, though by more for larger businesses than smaller ones. The major UK lenders reported that demand for credit remained subdued. The effective interest rate on new lending to companies was unchanged in January.

The total flow of net consumer credit edged higher in January and the annual rate of decline in the stock of lending eased. The major UK lenders reported that underlying demand remained subdued and availability was relatively tight. Spreads between effective interest rates on consumer credit and Bank Rate and Libor remained significantly wider than in late 2008, partly reflecting heightened credit risk.

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