Home loans at highest level since 2008 crisis
Slowdown fears ease as mortgage approvals and business borrowing climb while credit boom slows
BRITAIN’S slowdown could have run its course as business lending is rising, mortgage lending growing at a steady pace and the boom in consumer credit – which the Bank of England fears could be a risk to financial stability – appears to be moderating.
Mortgage approval numbers for home purchases climbed sharply from 65,318 in June to 68,689 in July, according to Bank of England numbers, surprising economists and raising hopes that the housing market is on the up.
By value, total mortgage lending hit £21.2bn in the month, the highest level since 2008 as borrowing to buy homes and to remortgage both increased.
Mortgages are cheaper than ever before, with the average rate on a new loan falling to just 1.95pc – the lowest level on record at the Bank of England. Economists hope that the slowdown in the housing market could now be over.
“July’s jump in the number of mortgages approved for house purchase reversed nearly all of the falls seen in the first half of the year,” said Ed Stansfield, at Capital Economics. “As such, they lend weight to the signs that the recent softness in mortgage lending may now have run its course.”
Meanwhile, consumer credit growth has slowed, though it remains at elevated levels. Unsecured lending – for instance on credit cards, overdrafts and short-term loans – increased by 9.8pc in July compared with the same month of 2016. This is the first time in more than a year that the annual rate has fallen to below 10pc.
Mark Carney, the Governor of the Bank of England, has warned that booming consumer lending could be a risk to financial stability, if individual lenders such as car finance firms run into trouble, or if some households struggle to afford their mounting debts. Shoppers put £16.6bn on their credit cards last month, a record high, though they also increased repayments. As a result, total debts on cards increased by £440m on the month, down from £506m in June.
“While consumer credit growth is still too strong for the Bank of England’s liking, July’s slowdown further dilutes the case for an interest rate hike any time soon,” said Howard Archer, chief economic adviser to the EY Item Club. “With the economy struggling and inflation looking close to peaking, we very much doubt that there will be any interest rate hike before late 2018 – and it could well be delayed until 2019.”
At the same time business lending picked up pace. Total borrowing by non-financial companies increased by 4.2pc on the year, up from 3pc in the 12 months to June, and the fastest pace since the financial crisis.
“The surge in corporate borrowing, which follows June’s similarly hefty £8.7bn increase, could be a sign that firms are about to invest more,” said Samuel Tombs, at Pantheon Macroeconomics. “This interpretation, however, jars with the recent decline in business confidence and the still-subdued levels of surveys of investment intentions.
“It’s more plausible, then, that the surge in corporate borrowing reflects firms fearing higher interest rates and locking in low borrowing costs.”
That is almost entirely driven by large businesses, where lending grew by 6.3pc, rather than small and medium-sized firms, which increased borrowing by only 0.7pc, the slowest pace in almost two years.
“Small businesses’ appetite for new finance is waning against a backdrop of unprecedented uncertainty, anaemic domestic growth and inflationary pressure weighing on consumer demand,” said Mike Cherry, national chairman of the Federation of Small Businesses. “Investment intentions are not where they should be and firms will only seek growth finance again when they have a clearer sense of what the future holds.”