Borrowing perks up slightly

Borrowing on mortgages and credit cards increased in May but remained weaker than in the previous six months, figures from the banking industry showed today.

The British Bankers' Association (BBA) said gross mortgage lending for the month was worth £14.3bn, 2% higher than in April, but 8% lower than May 2004.

The seasonally adjusted figures for net mortgage lending - gross lending minus all repayments - were up by £4.3bn, compared with increases of £4.0bn in April and £4.9bn in May 2004.

The average for the six months to the end of April was £4.5bn. The BBA said 186,442 mortgages were approved in May, with a total value of £16.5bn. The number of approvals was 3% lower than April and 17% weaker than May 2004.

The average approval for house purchase was £125,400, up from £122,700 in April. The year-on-year figures showed a marked fall in the number and total value of mortgages taken out for house purchases.

In May 2005, 67,702 mortgages were approved for this purpose, down 24% on last May's figure of 89,289. The total value of these loans was £8,487m, compared with £10,169m in May 2004.

Remortgages continued to make up almost half of the market, although numbers were also down on last year. In May 2004 remortgages accounted for 66,801 of the loans approved, compared with 63,636 this year.

The BBA said the total value of remortgages approved in May was up, at £6,607m compared with £6,249m last year.

The BBA's figures also cover lending on personal loans and overdrafts. It said during May, new lending of this kind was worth £3.3bn - well up on April's figure and the average for the previous six months, £2.9bn. After seasonal adjustment the rise in net lending was £0.7bn.

New borrowing on credit cards also increased in May, totalling £7.6bn, however the rate of increase, £0.1bn, was marginally weaker than the average over the previous six months.

"Whilst mortgage lending was slightly stronger in May, it is noticeable that all measures were below comparable data a year earlier, when May was a relatively weak month," said David Dooks, BBA director of statistics.

"Levels of loan approvals fluctuate with seasonal patterns, but the volumes we are seeing suggest that a fairly stable lending picture will continue in the near term.

"Credit card lending continued to be weak, reflecting the subdued retail sales environment, though lending on personal loans and overdrafts was slightly higher than the recent monthly average."

Howard Archer, chief UK economist at consultancy Global Insight, said: "The mortgage lending data for May are pretty subdued overall, providing further evidence that housing market activity is currently struggling to build on the very limited seasonal improvement seen earlier this year.

"This was also evident in the Hometrack survey released today.

"We maintain our belief that the housing market is more likely to see an extended period of relatively subdued activity and soft prices rather than undergo a sharp correction.

"However, much will clearly depend on how well the economy and employment holds up over the coming months, and we acknowledge that a sharp correction certainly cannot be ruled out."

He added: "Lending to individuals picked up to a limited extent in May, having been very low in April, while credit card borrowing remained subdued.

"This reinforces our belief that consumer spending will also be relatively muted for an extended period, but will avoid a sharp retrenchment."

And Simon Rubinsohn, chief global economist at Gerrard Investment Management, said that money markets are now pointing to "at least one and probably two quarter point reductions in base rates by the year end."