Summer fall in credit card borrowing

Mortgage lending picked up in August, the British Bankers' Association said today, but outstanding balances on credit cards fell as the public's appetite for debt continued to wane.

The BBA said gross mortgage lending reached £16.8bn in August, up on July's figure of £16bn and 1% higher than the £16.6bn recorded at the same time last year.

Seasonally adjusted net mortgage lending - gross lending minus repayments - rose by £4.3bn over the month. This was higher than July's increase of £3.7bn, but in line with the previous six-month average of £4.4bn.

During August there were 194,476 mortgage approvals worth a total of £18.3bn.

Approvals for house purchases were 9% higher in number and 26% greater in value than in August 2004. Remortgaging loans were 18% higher in value, while the value of equity withdrawal loans fell by 5%.

"Whilst August's net mortgage lending remained in line with this year's stable trend, the monthly amount of gross lending exceeded the corresponding month a year earlier for the first time in twelve months," said David Dooks, the BBA's director of statistics.

"Stronger remortgaging activity, representing 36% of all approvals, suggests that borrowers are shopping around for better deals and that gross lending will hold up in the coming months."

Howard Archer, senior analyst at consultancy Global Insight, said the BBA's figures provided further evidence that the housing market has stabilised.

However, he went on to say that significant renewed strengthening of house prices seemed "unlikely for some time to come given still-stretched affordability ratios".

The BBA's figures for consumer borrowing showed that new borrowing on credit cards increased by 13% in August, reaching £8,117m. However, repayments were also higher, meaning that overall outstanding debt on plastic fell by £0.1bn.

Borrowing on loans and overdrafts rose by £0.8bn, compared with £0.3bn in July and an average of £0.5bn in the previous six months.

"Structured personal loans and overdrafts were stronger than of late and there may well be some switching between different forms of borrowing," Mr Dooks said.

"It is worth noting, however, that overall trend growth in consumer credit is less than half the level this time last year."

Howard Archer said that although consumer credit had picked up in August, it was still significantly below levels seen a year ago and, he predicted, the trend would remain soft overall.

"The data do not alter our view that consumer spending is set to remain subdued for some time to come, and that the Bank of England is too optimistic on growth prospects," he said.

"Consequently, we continue to believe that another 25 basis point cut in interest rates is still a distinct possibility before the end of this year, despite the spike up in consumer price inflation."