The British Bankers’ Association (BBA) has revealed that gross mortgage borrowing in August totalled £12.4 billion.
This figure was 1% higher than in August 2015.
The BBA said consumer credit continues to show annual growth of over 6% reflecting fairly strong retail sales and in the case of personal loans and overdrafts favourable interest rates.
Non-financial companies deposits increased by an average of around £2-3 billion a month in 2015 but fell back in the first half of 2016 and are currently growing at an annual rate of 3.8% compared with around 10% in 2015.
Dr Rebecca Harding, the BBA’s chief economist, said: “The High Street Banking statistics published today point to a softer housing market, strong consumer credit and slightly weaker business borrowing in August. The data was collected before the Bank of England reduced interest rates to 0.25% and so give an indication of some of the underlying pressures that the MPC was responding to when it made this decision.
“Mortgage borrowing is growing at a slower pace than it has for the last few months reflecting both the slowdown in housing market growth after the April spike and broader trends in the sector.
“Given the low interest rate environment and high levels of confidence during the summer, the strong credit growth can be interpreted as strong consumer sentiment.
“Company deposits grew at an annual rate of 3.8% in August 2016 compared to 9% in August 2015 suggesting that companies may be using their own internal resources to fund working capital and growth requirements.”
Andrew McPhillips, chief economist at Yorkshire Building Society, said: “The fact that mortgage lending is still rising despite a fall in property transactions is a result of increasing house prices which are causing people to take out larger loans to afford a property. Although lending has shown strong growth over the past few years, mortgage approvals have been relatively flat and further increases in house prices could dampen market activity in the future, potentially causing growth in mortgage lending to slow.
“Increasing house price inflation is ultimately a result of the lack of supply, and this issue has been exacerbated over the past few months as a result of a spike in transactions earlier in the year which was caused by landlords rushing to beat the introduction of the new stamp duty rate, limiting the number of available properties in subsequent months. We may see mortgage approvals pick up slightly in future months once the market has recovered from this, but the underlying lack of supply remains and is likely to limit market activity in the future.
“In order to address this issue and help more people onto the property ladder, the UK needs to build more houses to bring supply in line with demand. Given that the UK currently has a housing deficit of around 1.2m properties, it is likely to take a significant amount of time to fully resolve this issue, and the government should also look to implement measures which would help more people to afford a home in the short term, for example, by making stamp duty a sellers’ tax rather than a buyers’ tax to reduce upfront costs.”
