SME borrowing down again as demand drops

Tim Wallace
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BUSINESS lending fell again in February, official data showed yesterday, while the level of mortgage loans is set to plummet after the end of the stamp duty holiday last month.

Lending to firms was three per cent lower in February than in the same month of 2011, Bank of England figures revealed, as total corporate debt fell £4bn in the month to February, accelerating after falls of £3.4bn in January and £1.8bn in December.

The fall in lending to small- and medium-sized enterprises slowed in the month, with a fall of 3.9 per cent in the year, compared with 5.2 per cent in the year to January and 6.1 per cent in the 12 months to December.

Banks claimed “muted” demand from SMEs partly caused the falls.

Conditions on wholesale markets were reported to have eased in the first quarter of the year, but the cost of credit to companies rose nonetheless, the Bank reported.

Gross mortgage lending hitting £13.4bn in March, up 30 per cent from £10.3bn in February and 17 per cent from £11.4bn in March 2011, according to the Council of Mortgage Lending (CML).

“The increase in our March lending estimate appears to be almost entirely due to stronger house purchase activity – the most likely explanation is that buyers wanted to complete their transactions before the end of the stamp duty concession on 24 March,” said CML’s Bob Pannell.

“We would be surprised if we did not see a drop in transactions over the next months, following the end of the stamp duty concession, especially as it will take some while for NewBuy transaction levels to build.”

Meanwhile a study from showed the average Briton thinks they will only be able to afford buy a house once they hit 37 years old, while the Bank reported the cost of a mortgage is rising, with the spread over the base rate jumping by up to 30 basis points on some floating-rate products.

More widely, the Bank described the consumer credit market as “subdued,” with secured lending up 0.8 per cent in the year and other consumer credit up 2.2 per cent.