MORTGAGE lending barely budged in January while businesses continued to pay off their debts instead of borrowing more, despite intense government efforts to push banks to lend more.
Meanwhile, bank deposit levels rose sharply despite interest rates plunging over recent months, industry data showed yesterday
Mortgage lending increased 0.2 per cent on the year to January, according to figures from the British Bankers’ Association (BBA).
That represents the slowest level of growth since BBA records began in 1997, and well below the growth rates of six per cent seen even in the depths of the financial crisis.
In January itself, mortgage lending came in at £7.3bn, down from £7.46bn in December, while repayments edged up to £7.63bn from £7.6bn in December.
The falling level of borrowing comes despite the Treasury and the Bank of England’s Funding for Lending Scheme (FLS), which gives banks cheap funds on the basis that they pass the benefit on to firms and households.
But instead of pushing up lending levels, analysts argue the ultra-low interest rates cause by the FLS are encouraging rapid repayment of existing debts.
“With monthly mortgage payments at historic lows, thousands of borrowers are overpaying their mortgage while they can, ahead of higher mortgage payments when rates do eventually rise,” said David Brown from LSL Property Services.
“Not only will this have the impact of softening the financial blow when the base rate does rise, but these borrowers will have built more equity and will be able to take advantage of better rates at lower LTVs when they do remortgage.”
Meanwhile business lending plunged again, dropping 5.7 per cent in the year to January.
That is smaller than the 6.5 per cent drop in December, but deeper than the 4.1 per cent seen in January 2012, and indicated the FLS has not yet kicked in for businesses.
And the BBA figures also showed that despite interest rates dipping sharply in the last six months, deposits at banks are up 6.2 per cent on the year.