Higher interest rates subdue personal borrowing

April figures for high street lending show that mortgage demand is moderating in the face of rising interest rates, according to the British Bankers’ Association (BBA).

April's gross mortgage lending of £17.3bn was 12% more than in April 2006. This largely reflects 10% annual growth in house prices and strong re-mortgaging activity.

There were 170,000 mortgages approved (for all purposes) in April; just 1% more than in April 2006, with an aggregate value of £19.1bn. The average loan approved for house purchase was £152,800, some 9% higher than a year earlier.

Underlying net mortgage lending (gross lending minus repayments and redemptions) rose by £5.0bn, slightly down on March’s increase, and lower than the recent average of £5.4bn. The annual growth in net mortgage lending continued to stay around 14%.
BBA figures also reveal that unsecured personal borrowing remains weak.

Credit card borrowing fell by £0.1bn (net) in the month, while borrowings on personal loans and overdrafts saw only a modest rise.

David Dooks, BBA director of statistics, said: “The latest three months have seen net mortgage lending stabilise, with rises (albeit still around £5bn a month) below the average of the previous six months. The picture from approvals points to mortgage demand weakening further as the year progresses and the cumulative effect of higher interest rates bites harder.

“Another net repayment on credit cards means that repayments have exceeded cardholders' spending in ten of the last twelve months, as they continue to run down their credit card borrowing.”

RICS comment on BBA mortgage lending figures

Commenting on BBA mortgage lending numbers, David Stubbs, RICS senior economist said: "Stretched affordability amongst first time buyers means that many cannot contemplate buying a home at the increased rates of interest now been demanded by mortgage providers. However, with many recent buyers shielded from higher rates by their fixed rate mortgages and the UK economy remaining strong, the housing market will only slow gradually and will not prevent the Bank of England raising interest rates at least once more."