Mortgage lending grew at its slowest rate for 10 years last month and house purchase approvals fell to an 18-month low, exacerbating fears of a "double dip" back into recession.
Net lending grew by just £1.6bn in September – the feeblest rise since October 2000 and a far cry from both last September's £2.9bn and the £2.2bn six-monthly average, the British Bankers' Association (BBA) said yesterday.
Gross lending, which includes redemptions and repayments, came in at barely £8bn – 11 per cent lower than last year and only about half the 2008 level before the financial crisis.
The gloomy BBA figures echo last week's report from the Council of Mortgage Lenders and follows research from Markit yesterday, showing housing market sentiment "lurching downwards". Mortgage lending levels are not the only weak area, according to the BBA. The number of house purchase approvals also continued to dwindle, reflecting falling demand.
Last month saw 31,100 approvals, the fewest since March 2009 and 5,000 fewer than the six-monthly average. The average value of new mortgages dropped, albeit only fractionally, to £142,900.
Consumer borrowing patterns are also increasingly subdued, faced with growing uncertainty and government plans for £81bn of cuts, outlined in last week's spending review. Personal savings levels rose by 4.6 per cent last month, while demand for unsecured credit, particularly on personal loans, dropped by 7 per cent, taking it down by 1.6 per cent over the 12 months as a whole, the BBA said.
Broadly flat credit card lending reflected a similar pattern as £5.9bn of new spending in September was offset by £6.1bn of repayments.
"Subdued mortgage activity and little demand for unsecured credit are a reflection of household uncertainties ahead of the spending review," said the BBA's statistics director, David Dooks. "Demand for new mortgages remains low despite more properties on the market and falling house prices."
Business lending also continued to fall last month as both demand and credit availability for medium and smaller businesses weakened. Although total net lending shot up by £19bn, compared with August, lending to non-financial companies fell by £3.3bn. "Business borrowing continues to reflect weak demand combined with companies reducing gearing by repaying bank borrowing," Mr Dooks said.
The BBA report comes ahead of third-quarter GDP figures, due out today, which are expected to show a steep fall-off in growth after the bounce in the second quarter. The option of a second round of quantitative easing (QE) has already started to gain ground with the Bank of England, and both the Chancellor and the Bank's Governor, Mervyn King, have hinted at renewal of the scheme.
The confirmation of a slowdown in the housing market yesterday will add weight to the arguments , according to Howard Archer, at IHS Global Insight. "The BBA report is an unappetising set of data that can only reinforce concern that tight credit conditions continue to pose a significant obstacle to economic activity," he said. "The data will fuel belief that the Bank may have to pull the QE trigger before long."Reuse content