Mortgage lending malaise deepens

BY DIANE COYLE

Economics Correspondent

Borrowing figures published yesterday brought new evidence of consumerdoldrums, with a fall in mortgage lending and a pick-up in other personal loans due to ``distress'' borrowing.

The Building Societies Association said net mortgage advances fell to £542m last month from £695m in January. Building society lending in February was the lowest since February 1993. The number of new advances last month, at 35,000, was 17 per cent lower than a year ago.

New commitments, or agreements for future loans, rose from £2.0bn in January to £2.7bn in February, but this was lower than in the same month last year.

Adrian Coles, director general of the BSA, said the housing market would remain subdued despite the onset of the traditionally buoyant spring season. He said: "It is becoming clear that neither prices nor transactions will show any significant growth in 1995."

Separate figures from the British Bankers' Association showed mortgage lending by the high street banks also fell last month, to £597m.

The BBA said that year-on-year growth in mortgage lending by its members had been slowing for more than 12 months, and has dropped to 6.9 per cent.

Ian Shepherdson, an economist at HSBC Markets, said: ``We had expected flat house prices this year, but that is starting to look optimistic.''

Additional mortgage rate rises would hit the housing market again, he added.

The BBA said that other consumer borrowing had continued to pick up, however.

Consumer borrowing, in decline a year ago, reached an annual growth rate of 5.5 per cent in February.

Non-mortgage lending by BBA members increased by £249m in February - the biggest rise for more than a year - of which nearly half was on credit cards.

Tim Sweeney, the BBA's director general, said it was debatable whether this strength reflected growing consumer confidence or involuntary borrowing by consumers short of cash.

Many economists favour the distress-borrowing explanation, as the evidence from retailers is that spending is flat.

Ciarn Barr, UK economist at Morgan Grenfell, said: ``With tax increases and mortgage rises, cash flow has just not been good enough to finance the desired level of purchases.''

Kevin Darlington at Hoare Govett added that distressed retailers were contributing to the increase in lending by offering cheap credit to tempt customers.