The British Bankers Association (BBA) reports that gross mortgage lending went up by 7.5 per cent in May, compared to the recent monthly average in a further sign that the property market is strengthening.
Gross mortgage borrowing in May reached £8.6 billion but was £0.5 billion less than the total capital repayments made in the month which reached £9.1 billion, £1.2 billion more than the £7.9 billion repaid in April.
A total of 65,752 mortgages were approved in May, up by 4,490 from April and up from the latest six-month average of 59,776.
The BBA said that higher capital repayments, including full redemptions are the cause for the contractions in borrowing stocks seen over the last 12 months.
2013 has seen net lending fall into negative territory as more people repay capital than borrow new funds.
However, house purchase approvals are up by 24 per cent on May 2012 and remortgage levels are 17 per cent higher, which the BBA says continues “the upward trend seen since the start of the year”.
Howard Archer, Chief UK & European Economist at IHS Global Insight said: “The marked pick up in mortgage approvals in May to a 16-month high reported by the BBA adds to evidence suggesting that housing market activity may finally be really stepping up a gear, helped by improving consumer confidence and elevated employment, as well as by the Funding for Lending Scheme and the first stage of the Help to Buy initiative.”
The BBA said it expects government initiatives to increase the number of first-time buyers and help smooth out housing chains in general.
The BBA said approvals for other types of loans fell back “reflecting reduced equity and reluctance amongst homeowners to take on extra borrowing”.
It said the average house purchase approval price rose to £159,200.
BBA statistics director, David Dooks said: “New mortgage borrowing from the high street banks strengthened in May and approvals for both house purchase and remortgaging continued to rise.
“Unsecured consumer borrowing also saw a small net rise overall, in line with improved retail sales volumes.”
However, business borrowing fell back markedly, with net lending down by £1.7 billion on the month. The BBA said that smaller firms were using cashflow and deposits to fund investment rather than borrowing from banks.
However, some analysts believe that it is the reluctance to lend to small firms without assets that is the problem.
Louise Beaumont, co-founder of the business finance provider Platform Black, said: "Over the past six months, net bank lending to British business shrank by an average of £1.7 billion a month.
“The problem is that most high street banks can’t or won't consider lending to a business without significant assets and security, which rules out most of Britain's small businesses.”
The BBA said that savings levels or personal deposits have gone up by 5.5 per cent over the past 12 months.
Unsecured borrowing shrank by 0.9 per cent over the same period but within that credit card borrowing went up by 6.5 per cent and borrowing through personal loans and overdrafts dipped by 6.7 per cent.
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