Mortgages on the march but small firms stay in the cold

New mortgage lending has hit a five-year high as buyers rush back into the rising property market, but small businesses remain in the grip of a credit squeeze, figures from the Bank of England showed yesterday.

Lenders approved 66,735 mortgages for house purchases in September – the highest level since February 2008, when the economy was on the verge of recession.

In a sign that financial conditions for corporates might finally be thawing, net lending to businesses rose by £700m during the month, after a steep fall in August. However, net lending to small firms contracted by £400m as the sector, which has been the subject of a credit-easing drive by the Treasury and the Bank, once again repaid more in debt than it took on in loans.

The figures showed another drop in the cost of credit for house buyers, reflecting the incentives for commercial lenders in the Bank's Funding for Lending Scheme. The effective interest rate on new mortgages dipped to 3.3 per cent in September, its lowest level since comparable records began in 2004. Consumer credit rose by £400m during the month – an annualised growth rate of 3.5 per cent. "Cheap credit is providing the fuel for this consumer-led recovery" Rob Wood, of Berenberg Bank, said.

George Osborne has been criticised for stoking a new housing bubble with the Help to Buy scheme, which offers a state guarantee of 15 per cent of eligible new mortgages issued by the banks. But City analysts noted that monthly mortgage volumes remain about 40 per cent below pre-2008 rates. "For now, there remains little evidence that a renewed boom in the housing market is developing," Samuel Tombs, at Capital Economics, said.

Despite the easier conditions for home buyers and larger companies, the Bank's preferred gauge of overall lending (known as M4Lx) still showed a 0.1 per cent contraction on a year earlier.

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