Mortgages squeezed but consumer lending jumps

By Michael Millar

Date: Tuesday 03 Jul 2012

The squeeze on mortgage lending continued in May with analysts saying the crisis in the eurozone would ensure this continued in the near future.

The Bank of England reported that mortgage approvals for house purchases fell to 51,098 in May, from 51,823 in April.

This followed a 25-month high of 58,610 in January when first time buyers rushed to take advantage of a stamp duty holiday.

"May’s decline in mortgage approvals was surely related to the fact that lenders are once again reducing the availability of mortgage credit," said analysts at Capital Economics.

"Against a backdrop of renewed recession in the UK and the escalating crisis in the euro-zone, mortgage approvals are unlikely to break out of their rut anytime soon."

However, the Bank reported unsecured consumer credit had picked up sharply to £732m in May, from £379m in April.

In May, there was modest net borrowing of £70m on credit cards after a net repayment of £60m in April.

The total was driven by a net increase of £603m in other loans and advances in May, which was the largest since December 2010 and up from an increase of £439m in April.

"The appreciable pick up in unsecured consumer credit in May is a surprise but it may have been affected by some people having to borrow more as a consequence of the extended squeeze on their purchasing power," said Dr Howard Archer, Chief UK Economist at IHS.

"Latest data from the Office for National Statistics show that households’ real disposable income fell 0.9% quarter-on-quarter in the first quarter of 2012 after a similar drop in the fourth quarter of 2011," he added.

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