Lending figures continue to edge upwards

Mortgage lending and credit card borrowing reached their highest levels so far this year in June, but consumers' appetite for debt remains weaker than it was last year, figures released today show.

The British Bankers' Association (BBA) said its members lent a total of £16.5bn in mortgages over the month, an increase on May's figure of £14.3bn but 9% less than in June 2004.

Net mortgage lending was up £4.6m and the annual growth rate is hovering around 12%, the lowest growth rate since February 2002.

The BBA said that compared with June 2004, mortgage approvals for house purchases were 20% lower in number and 10% lower in value. The average mortgage approved for property purchases was £131,600.

The number of remortgage customers was 9% lower than in the same period last year, but remortgage loans were 2% higher by value, and the number of homeowners taking equity withdrawal loans had fallen by 19%.

In total there were 195,242 mortgages approved in June with a total value of £17.6bn. The number of approvals was up 5% on May, but 17% lower than in June 2004.

Other borrowing showed little sign of growth, with lending on loans and overdrafts virtually flat when seasonally adjusted. New borrowing on personal loans and overdrafts was above the average of the previous six months, at £3.1bn, but down on the figure for May.

After seasonal adjustment there was a rise in net lending of just £75m.

New borrowing on credit cards from BBA members added up to almost £7.5bn in June, slightly below May's total. However, when seasonally adjusted the total amount of outstanding debt on credit cards was up £0.3bn over the month, much more than the £0.1bn recorded over the previous six months.

Commenting on the figures the BBA's director of statistics, David Dooks, said: "Whilst growth in mortgage lending has slowed to an annual rate last seen in 2002, higher volumes of loan approvals in June mirror the stronger seasonal pattern, showing that there is stable underlying demand for loans.

"If June's higher credit card lending was a reflection of consumer spending, then it was offset by very low demand for loans and overdrafts.

"Consumers' ability to switch easily between credit options means that components fluctuate, as in June, but the overall picture is one of subdued unsecured lending."

The subdued picture has continued into July, according to one of the BBA's members, HSBC. It said demand for personal loans, mortgages and equity withdrawals in its branches had continued to decline in July, so that activity for the month was 10.9% down on June 2004.

Over the past three months, HSBC said overall enquiries from potential borrowers were nearly 7% lower than in the previous three months.

"Household appetite to borrow has slowed markedly over the past year but that slowdown was inevitable and welcome," said John Butler, UK economist with HSBC's economics and investment team.

"The key issue over the next few months is whether individuals' enthusiasm for borrowing returns with the prospect of lower interest rates."

Separate figures released today by the organisation representing mortgage lenders show that the numbers of repossessions and cases of borrowers falling into arrears both rose in the first half of the year, however the total number of homeowners facing these types of problems is still low by historical standards.

The Council of Mortgage Lenders (CML) said in the first six months of 2005, 4,640 properties were repossessed, up from 3,070 in the second half of last year - the lowest figure on record.

The half-yearly repossession rate was around one in 2,500 mortgages, compared with around one in 250 in the second half of 1991 when repossession rates peaked.

The number of mortgage cases where a borrower had fallen three to six months behind with repayments totalled 57,220, compared with 53,960 in the second half of last year, while 30,980 mortgage were in arrears of six to 12 months, compared with the previous figure of 26,920.

The CML said the rise in arrears was due to a number of factors, included rising interest rates and the build up of personal debt. It added that homeowners still had high levels of equity in their properties, which would cushion them against repossession.

The organisation's deputy director general, Peter Williams, said: "It now seems clear that the second half of 2004 marked the trough in the number of mortgage arrears and possessions.

"Arrears and possessions now look set to rise a little, but only to the sort of levels experienced in the past few years. A rerun of the early 1990s is certainly not on the cards."

He said the government and the mortgage industry were currently looking at different ways to make mortgages more "economy-proof".

"Becoming unemployed or seeing interest rates rise should not result in an inevitable arrears situation for borrowers," he said.

"We are currently identifying how to target those most at risk - such as first-time buyers - with information to help them assess their risk and reduce their vulnerability to changing circumstances."