Banks' lending to business shrinks again

Almost three years after the credit crunch, lending to business and homebuyers remains constrained and expensive for riskier borrowers, according to the latest reports from the Bank of England and the Council of Mortgage Lenders.

In its latest Trends In Lending report, the Bank said that lending to business fell again in April by £400m – an 8 per cent drop on a year ago.

Despite calls from ministers – most recently by the Business Secretary, Vince Cable – for the banks to support enterprises and honour lending agreements, they seem much keener on preserving capital and shrinking their balance sheets. That imperative has also affected mortgage lending.

The Bank and CML have identified a slight improvement in mortgage lending but it still remains extremely depressed by normal standards.

First- time buyers in particular, face exacting demands from lenders for high deposits – on average up from £13,000 in the boom to £33,000 now. The vast majority of young first-time buyers – 85 per cent – rely on parental help for their deposits.

The Bank said mortgage approvals for house purchases by major lenders were reported to have improved modestly to 51,000 in May from 48,000 in April (which had been the equal lowest level since May 2009) but remained well down from last November's peak level of 61,000, and pre-crisis levels closer to 100,000.

Meanwhile, the CML noted that the value of gross mortgage lending rose 7 per cent on the month, and 10 per cent on the year to £11.3bn in May. However, it said the market "remains subdued".

Howard Archer, the chief economist at Global Insight, said: "This suggests that the housing market is still finding it difficult to regain momentum after faltering around the turn of the year and reinforces our belief that house prices will struggle to make significant gains over the rest of this year."

A lack of appetite for debt and an anxiousness to pay off existing loans and mortgages is also pushing down credit figures.

The Bank also reported that net consumer credit edged down by £0.1bn in April after four months of modest growth. Money supply growth has also slowed, which may disappoint the Bank. It was flat in May and caused the year-on-year growth rate to slow to a 37-year low of 2.8 per cent.