Mortgage and consumer lending dips sharply

Mortgage lending by the major high street banks dipped sharply over the autumn, confirming that the threat to inflation from a housing market boom has receded.

Mortgage lending by the major high street banks dipped sharply over the autumn, confirming that the threat to inflation from a housing market boom has receded.

Total home loans made over the three months to September plunged by almost 13 per cent compared with the previous quarter, the British Bankers' Association said yesterday.

Banks loaned £5.75bn to homebuyers, down from £6.58bn in the three months to June and the lowest since the end of last year.

Tim Sweeney, director general of the BBA, said: "The long-term trend shows that demand for residential mortgages peaked in the second quarter."

The drop contributed to a 20 per cent fall in total lending by the banks, which includes other consumer lending and business loans. Other consumer lending fell to £1.57bn from £2.07bn.

Separate figures from the Bank of England showed total bank and building society lending to consumers climbed to £4.4bn in September from £4.1bn the previous month, but the annual growth rate edged lower to 9.3 per cent.

Total mortgage lending dipped to £3.3bn in September from £3.6bn. The Bank reported a small fall in the number of new loans approved, down 1,000 on the month to 96,000.

Economists said the mortgage figures showed that the housing market had lost steam and was now on course for stable growth.

Adam Law, at Barclays Capital, said: "Although secured lending remains fairly firm, the slowdown in the annual rate of growth ties in with all the other evidence that shows activity in the housing market is slowing."

Further evidence of the state of the housing market will come tomorrow when Nationwide, the country's largest building society, publishes its house price report for October.

The mortgage figures will be greeted with mild relief by the Monetary Policy Committee of the Bank of England which meets next week to set interest rates.

A "shadow" MPC, set up under the auspices of the Institute of Economic Affairs, today said rates should be kept on hold. But the committee, made up of academics and other expert economists, was divided over what the next move should be.

Some argued that the next move would be a cut, especially if there were a stock market collapse. But others highlighted rising world inflation and growth of UK money supply as a warning signal that rates may have to rise.