Mortgage approvals fall in June, but consumer lending rises, says BoE

Mortgage approvals fell in the run-up to the EU referendum in June, below expectations, according to the Bank of England on Friday, but lending to consumers increased.

The BoE said in June 64,766 mortgages were approved compared to 66,722 in May, which was below the 65,650 expected by analysts.

The number of remortgage approvals was 43,102 in comparison to the 41,592 average for the last six months.

However, lending to consumers increased by 10.3% year-on-year, at the fastest rate since October 2005.

Net consumer credit increased by £1.8bn in June, exceeding May’s £1.6bn rise and the £1.4bn forecast.

The BoE also said that net mortgage lending rose about £3.35bn in June, more than the £2.6bn forecast in a recent Reuters poll. It was, however, still far off the March peak of about £7.28bn.

Economists have said falling business and consumer confidence may prompt the BoE to cut interest rates in August to a record low of 0.25%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said June’s data showed no signs that banks were turning off the credit taps because of Brexit, and would aid cautious BoE monetary policy committee members.

“June’s money data show that banks continued to provide a smooth flow of credit to the economy despite the shock referendum result. The Bank of England’s preferred measure of bank lending - M4 lending excluding intermediate other financial corporations - rose by 1.2% month-to-month in June, above the 0.5% average increase of the previous six months. June’s hefty rise was mainly due to a 8.2% month-to-month jump in lending to the non-bank financial sector, which perhaps reflected City firms ensuring they had ample liquidity in case investors pulled funds.

“All in all, the monetary policy committee will be reassured that very low interest rates are stimulating borrowing, and that the absence of major distress in the financial system this month implies that banks will maintain credit provision. As such, today’s data will boost those monetary policy committee members arguing for a cautious ‘wait and see’ approach to more stimulus at next week’s meeting."

It was reported on Friday that consumer morale plummeted after the Brexit vote. Market researcher GfK reported that consumer confidence fell to 26 year lows in its index, falling 11 points to -12.

Nationwide on Friday also said that house prices rose at the fastest rate in four months in July, but it was too early to tell what the impact of Brexit will be.

According to the Royal Institution of Chartered Surveyors on Thursday, Brexit has an immediate impact on the housing market as sales fell and construction workload slowed due to delayed investment.