Mortgage Lending Increases Despite Debt Turmoil

TUESDAY, APRIL 25, 2006

This March 2006, saving and lending figures suggest that most consumers are now trying to stay clear of unsecured loans and are investing their cash in bank deposits and increasing their mortgage debts at the same time.

British Bankers' Association (BBA) and the Building Societies Association’s (BSA) statistical reports did show that mortgage lending has increased substantially since last March 2005. BSA confirmed that its members advanced about £4.2bn in March 2006, which is a larger amount, compared to £3.5bn that was advanced during the same month last year.

A total of £5.6bn was the approved in new mortgages as of March this year. This is relatively high compared to £4.5bn of March 2005. The BBA confirmed that the amount of £5.4bn is the highest rate of new mortgage loan over the past six months. The month of February also came in higher at £4.7bn as the average recorded mortgage lending of £4.9bn.

These data are supported by the Council of Mortgage Lenders (CML). The organization agreed that there are records that could show the increased level of mortgage loans during March of this year. But despite the high demand for mortgage borrowing, BBA observed that consumers had cut down on unsecured loans, thought to be primarily a good thing.

Unsecured borrowing includes overdrafts and personal loans. As observed in the past six months, these types of loans fell by £100m while credit card loans ride up to an average of about £200m. Non- mortgage loans also decreased to £400m, which is £100m lower than the previous months.

BBA’s statistics director, David Dooks stated the contradicting figures of mortgage loans and net repayments of unsecured loans imply that modern consumers are gaining confidence in the present housing market and cautious in credit card loans, personal loans and overdrafts.

Chief UK economist for Global Insight, Howard Archer suggested that consumers are still aware of the limitations of credit card spending and are now looking for cheaper ways to finance their personal borrowing. He added that the records for high debt levels, increased unemployment rates and increased pensions relatively implied that there is a high need for consumers to reduce their debt levels.

The awareness of consumers to stabilise their finances was confirmed with fresh statistics showing that the increased amount of deposits on savings accounts and a build up of societies this month of March. The BBA stated that personal deposits reached £16bn (1.9%,) up to £856bn. In addition, net payments for saving accounts welled up to £384m compared to only £221m of last year.

The BSA added that the savings statistics for the first quarter of 2006 increased four times compared to last year’s record. This is by far the highest total figure during the first quarter since the year 2001.