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'Clear' sign of rising confidence

People's borrowing using personal loans and overdrafts is growing for the first time in over five years in a "clear" sign of rising consumer confidence, high street banks have reported.

The British Bankers' Association (BBA) reported that net personal loan and overdraft borrowing increased by 0.5% annually in March, marking the first rise recorded since January 2009 as more people start to think about splashing out on new purchases.

But the number of mortgage approvals made to home buyers fell back to a four-month low, prompting experts to question whether the housing market is coming "off the boil".

The BBA said 45,933 approvals worth £7.5 billion were given the go-ahead in March, marking the lowest number seen since last November.

Mortgage approvals for house purchase have been on a downward drift since nearly 49,000 of approvals were made in January.

Government schemes such as Help to Buy have given people with only small deposits saved, extra support to help them on to the property ladder in recent months and the BBA said that despite the recent slowdown in its figures, the number of approvals recorded for house purchase was 43% higher in March than during the same month in 2013.

Richard Woolhouse, chief economist at the BBA said: "Lending on personal loans and overdrafts has been picking up recently but it is significant that this is the first time that we have seen positive yearly growth rates since 2009.

"Consumer confidence is clearly picking up as more people seek to borrow from their bank to fund new purchases.

"This is against a backdrop of continued buoyancy in the mortgage market, although growth rates have slowed slightly in recent months."

The BBA's figures also showed that credit card borrowing has grown by 3.1% annually, with people spending £8.2 billion on their credit cards in March, marking a 6.3% uplift on the same month a year earlier.

Earlier this week, a report from Lloyds Bank suggested that people are likely to become more willing to spend money on luxuries in the coming months as the pressure from living costs eases back and confidence in the jobs market improves. Lloyds found that an overall balance of 5% more people think they will have more money to spend on discretionary items in the next six months.

The BBA's figures showed that net lending to non-financial businesses decreased by £2.1 billion in March, marking the sharpest decline seen since last July, while for financial businesses there was a £18.9 billion lending decrease.

The report said that an ongoing contraction in lending to the real estate sector accounts for a "significant element" of shrinking business lending.

It said: "However, growth in borrowing by manufacturers has been positive over the past few months and wholesale and retail trade is also showing signs of growth."

Howard Archer, chief UK and European economist for IHS Global Insight, said the BBA's latest mortgage approval figures could just indicate that the housing market is "pausing for breath".

But Ed Stansfield, chief property economist at Capital Economics, said the figures echo signs that the market "has come off the boil", with other recent surveys suggesting that the pent-up demand from buyers which was unleashed by Help to Buy is tailing off.

Mr Stansfield said: "We suspect that mortgage lending will soon reverse its recent decline. But, with many lenders still displaying a degree of caution, we would not be surprised to see the pace of the recovery slacken off."

Toughened mortgage lending rules are set to come into force tomorrow under the Mortgage Market Review (MMR) which aims to prevent any return to irresponsible lending by forcing lenders to ask more probing questions of people looking to buy a home or re-mortgage in order to make sure they can afford their repayments now and when interest rates eventually rise.

Experts have suggested the MMR rules could have a dampening effect on the housing market as lenders adjust to the changes.


From Belfast Telegraph