Mortgage approvals hit 9m low, consumer credit demand remains strong

The number of mortgages being approved by UK banks and building societies is dropping but consumers are not reining in their demand for other forms of credit, the Bank of England revealed on Monday.

UK mortgage approvals for house purchases in June fell to 64,684, a nine-month low, down from the revised total of 65,109 in May, below the consensus forecast of 65,000.

The BoE said approvals for remortgaging ticked up to 44,548 in June, similar to numbers seen earlier in the year.

Unsecured consumer credit increased again, however, rising by £1.5bn on the month, although down from the strong £1.8bn rise the month before. This was in line with consensus expectations and the six-month average, but was the 14th successive month of double-digit year-on-year consumer credit growth.

The Bank's monthly update came on the same morning as its Financial Conduct Authority arm warned that fundamental changes were needed in the way certain types of consumer credit such as unarranged overdrafts are provided by lenders.

June, which was the month of the snap general election, saw loans to large non-financial businesses increase by £0.6bn in June, with a particularly large increase in the manufacturing sector, while lending to SMEs increased by £0.4bn, a touch higher than the recent average.

Growth in the broad money supply picked up in June, the BoE also revealed, with a £9bn increase as households' money increased 0.4% on the month following a weak flow in May and businesses money was well above its recent average.

This provides some reassurance that the economy is not losing more momentum, said economist Samuel Tombs at Pantheon Macroeconomics.

Although business borrowing was well above its recent, he said it was "impossible to tell, however, if the pickup in corporate borrowing reflects plans to invest more or firms responding to speculation that interest rates might rise soon by bringing forward planned borrowing".

On housing, Tombs said approvals looked set to decline further in the second half of this year, as lenders tighten the credit taps and households become increasingly cautious about making major financial decisions, and while households’ disposable incomes still are being boosted by refinancing old mortgages at lower interest rates, the size of the boost is declining.

Ruth Gregory was more optimistic, seeing the data as providing "another reason to think that the consumer slowdown shouldn’t be too severe" on the view that household borrowing figures continue to show a divergence between borrowing to fund a house purchase and borrowing to fund other spending.

"This will clearly do nothing to allay policymakers’ fears that unsecured credit is growing too quickly. But this at least suggests that households remain confident enough in their financial position to increase borrowing to help smooth consumption, as their real incomes are temporarily squeezed by higher inflation."

Elsewhere, while the annual growth in lending to corporates fell back, firms’ investment intentions are holding up well and so "bank lending growth looks unlikely to slow significantly further in the coming months".

Mark Harris, chief executive of mortgage broker SPF Private Clients, said lender appetite is far stronger than the central bank's figures suggest.

"With little upward pressure on interest rates, lenders continue to reduce their fixed-rate mortgages," he said. "HSBC was the latest lender to cut rates at the end of last week, resulting in a five-year fix pegged at just 1.59 per cent. We expect to see plenty of action on the remortgaging front as borrowers move to take advantage of some of the cheapest rates ever."