EFFECTIVE interest rates on new deposits have dived from 3.01 per cent in August, when the Funding for Lending Scheme (FLS) started to provide banks with cheap funds, to just 2.11 per cent in December, the Bank of England revealed.
But the cheaper funds have started to divert cash back into the mortgage market, the data revealed, fuelling a boom in mortgages.
Lenders approved 55,785 loans for house purchase in December, an 11-month high, up 3.3 per cent on November’s 54,011 and up 6.1 per cent on the total approved during the same month in 2011. The total value of these loans climbed a full 10.4 per cent over the year to reach £8.3bn.
This improvement pushed many analysts into suggesting FLS was finally revitalising the generally moribund housing market.
Katie Evans at the Centre for Economics and Business Research called the data “tentative signs that FLS is easing credit conditions,” while Melanie Bowler at Moody’s Analytics said “UK credit conditions are slowly starting to loosen.”
But this loosening did not extend to business lending, which contracted further from its already low base.
The net monthly flow of credit in November was minus £2.8bn – indicating that more money was paid back than was lent out in new loans.
This meant the three-month annualised growth rate moved further in the red, to minus 3.5 per cent, following October’s annualised contraction of three per cent.
The yearly rate was even worse, showing a 4.1 per cent contraction in business lending over the 12 months to November.