Money
29 July 2010
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Data released by the Bank of England today showed that the number of mortgage approvals fell for the second consecutive month as appetite for secured lending has eased. Mortgage approvals fell by 4.4% over June to a level of 47,643, a fall that exceeded consensus expectations. This brings approvals to their lowest levels since May 2009, when the UK economy was still in recession.
The data also showed that total net lending to individuals rose by £0.6bn in June, which is below the six-month average of £1.2bn. Of this, net secured lending increased by £0.7bn and net unsecured lending recorded a fall of £0.1bn contrary to consensus expectations of a slight increase. The dip in consumer credit is partly down to increased risk aversion on the part of lenders and also to households paying down debt.
The fall in mortgage approvals can be explained by the uncertainty employment prospects which has reduced household demand for secured lending. Increased competition between lenders has seen spreads narrow but this has yet to manifest itself in increased demand.
The relatively flat growth in overall net lending looks set to continue as households appetite for risk has been reduced since the economy pulled out of recession. The rebalancing of risk appetite has seen default rates for both secured lending and consumer credit fall over the last financial quarter, as lenders are also more cautious in their scoring criteria. On the balance, growth in secured lending appears to be more vulnerable to a deterioration in the economic environment as the government's austerity measures continue to cause uncertainty in the job market.