Mortgage approvals for house purchases were 13 per cent lower than a year ago in August and other types of personal borrowing remain “subdued”, a high street banking report showed today.
There were 30,533 such mortgage approvals worth £4.8 billion last month, and although the figures are lower than a year ago they show a small upturn on just under 29,000 approvals in July worth £4.5 billion, the British Bankers' Association (BBA) report showed.
The Bank of England and the Treasury's £80 billion “funding for lending” scheme was fired into action at the beginning of last month to unclog the flow of credit to households and businesses.
There have been signs since of lenders stepping up competition around mortgage rates, although much of this has been aimed at borrowers with larger deposits.
BBA statistics director David Dooks said that consumers are continuing to act “conservatively” in the weak economic environment, by paying down their debts and building up their savings.
He said: “Household mortgage approvals are improving slightly but unsecured borrowing continues to be subdued.”
Total mortgage approvals have been creeping back up from a low point in June, which saw the smallest number of approvals the BBA had in its records, which stretch back to 1997.
Within the latest figures, there were 17,558 re-mortgage approvals worth £2.4 billion, showing an increase compared with July but coming in slightly below the six-month average of just over 17,800 approvals.
Mortgage lenders have tightened their borrowing criteria amid the tough economy and raised some of their rates in recent months, blaming the increased cost of funding a mortgage, leading to concerns that many existing home owners will find it tougher to switch deals.
The latest report also showed that non-mortgage borrowing remains relatively weak, and the outstanding level of unsecured borrowing from the banks has contracted by 3.1 per cent over the year to August.
A long-standing trend of people paying off more on their credit cards than they spent continued, with new spending increasing slightly to £7.1 billion in August, but repayments totalling £7.4 billion.
Meanwhile, net personal loan and overdraft lending saw a £434 million decrease in amounts outstanding in August, compared with a £368 million drop in July.
The BBA said that inflows into cash Isas have continued to be strong, leading to a rise in all personal deposits of 5.8 per cent over the year to August.
The tax-free status of Isas has been particularly attractive to consumers as people have struggled to find accounts to give them real returns on their savings amid high inflation and the Bank of England maintaining the base rate at a record 0.5 per cent low.
Personal deposits saw a net increase of £4.2 billion in August, in line with the previous month.
Net lending to non-financial businesses saw a £1.5 billion decrease in August, slightly lower than the six-month average of a £1.6 million drop.
Mr Dooks said: “Weak trading conditions persist so companies may well remain reluctant to borrow for investment or expansion in these conditions.”