Mortgage approvals flat, consumer credit dips, business deposits rise

UK mortgage lending remained largely unchanged but consumer credit eased lower last month, according to the latest figures from the banking industry,

UK mortgage lending remained largely unchanged but consumer credit eased lower last month, according to the latest figures from the banking industry, while businesses began to hold onto more cash in the face of political and economic uncertainty.

Approvals for house purchase mortgages from the main high street banks increased to a six-month high of 41,807 in August from 41,644 in July and a nine-month low of 40,424 in June.

The consensus forecast was for no change and August’s level was 5.5% below January’s 44.3k, above the post-referendum average of 40.7k and below the previous 10 years’ average of 51.7k.

Data from UK Finance, the new industry body that has taken over from the BBA in reporting high street banking statistics, showed consumer borrowing from high street banks slowed to 1.5% in August from 1.9% in July.

The mix of housing activity has shifted towards first-time buyers, away from buy-to-let and cash, with some rebalancing across regions, as activity picks up in the north of England, Wales and Scotland, as London and the south east have seen a slowdown.

A day after the Bank of England warned about dangerous “pockets” of consumer credit risk in the sector, UK Finance also said annual consumer credit growth had slowed in August to 1.5% from 1.9% a month earlier, hitting its lowest level since April.

Annual growth in credit card lending also slowed to 5.0% in August, the weakest since April last year, from 5.3% in July, 5.5% in June and May, and 6.4% in April.

Net credit card lending slowed to an 8-month low of £83m in August from £192m in July, while personal loans and overdrafts fell 1.6% year on year in August after falls of 1.0% in July and 1.3% in June.

Non-financial companies’ deposits grew 8.7% year on year as businesses hold on to their cashflow.


“Despite resilience in consumer spending, annual growth in consumer credit has been slowing over the last few months,” said UK Finance’s senior economist Mohammad Jamei. “Across the UK some households have opted to save a little less, whilst others have not increased their borrowing.

“Meanwhile there has been growth in business deposits as non-financial companies hold cashflow and reserves amidst broader uncertainty in their trading conditions.”

Economist Sam Tombs at Pantheon Macroeconomics said the housing market “still looks on course for a renewed slowdown”, with new buyer enquiries falling for the fifth consecutive month in August, according to recent data from RICS.

“In addition, the recent jump in banks’ wholesale funding costs in response to the MPC’s warning that Bank Rate will rise over the coming months means that new mortgage rates will increase soon too. Meanwhile, CPI inflation still looks set to outpace growth in nominal wages for another six months. As a result, fewer would-be homebuyers will pass banks’ affordability tests and many won’t feel confident enough to make major financial commitments.”

Howard Archer, chief economic advisor to the EY ITEM Club, agreed that the recent pick-up in mortgage approvals from June’s low was unlikely to mark the start of an upturn in housing market activity, with consumer purchasing power weakened and the BoE’s looming rate adjustment a potential concern to buyers.

“Having said that, the Bank of England has regularly stressed that interest rates will rise only gradually and to a limited extent.”

Archer retained the view that house prices are likely to rise by 2-3% over 2017, with a modest rise of around 2% likely in 2018.

With the Bank of England at the start of the week having highlighted its concerns about the significant risks of consumer borrowing to the banking sector, news of a slowing in growth will please the central bank.

“The latest credit conditions survey indicated that banks are becoming more cautious in their behaviour by making less unsecured credit available to consumers and tightening lending standards,” Archer said.

“It may well be that heightened uncertainties over the outlook and increased concerns over personal finances are encouraging some consumers to be more cautious in their borrowing. Indeed, consumer confidence in August was only modestly above July’s one-year low. However, the recent persistent squeeze on consumer purchasing power is likely fuelling the need for some consumers to borrow.

“In their borrowing decisions, consumers will need to be mindful that the BoE could well raise interest rates sooner rather than later. While any interest rate hikes would be limited and gradual, even small increases could cause challenges for some consumers given high borrowing levels.”

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