Mortgages lead lending pickup but firms see less from banks

The UK saw mortgage approvals hit a six-year high of 71,638 in December, up 29.3 per cent year-on-year, according to the Bank of England (BoE).

Lending for mortgages led the marginal pickup in bank lending, which was up 1.3 per cent year-on-year in December.

Home lending rose by £1.7bn in December, higher than the £1.05bn analysts were ecpecting and than the average monthly increase of £1.1bn seen over the past six months.

Lending for house purchases will most likely increase over the next few months, says Capital Economics.

Martin Harris, chief executive of mortgage broker SPF Private Clients, says that the rising increases in mortgages suggests growing confidence in the housing market.

But Matthew Pointon of Capital Economics says that, despite concerns that the mortgage market is overheating, there's no need to panic.

Looking ahead, it is also unlikely that banks are about to return to the lending practices that characterised that previous boom.

He added that it’d be difficult for the BoE to justify policies that rein in mortgage lending “when banks are not engaged in rapid credit expansion”. However:

Given the UK’s past history with housing market booms, the authorities must remain vigilant to the risks. And while the Bank may not yet need to take action to cool the mortgage market, it would seem sensible to at least cut down on the Government’s efforts to stimulate it.

The bank lending figures out this morning also showed that lending to companies dropped at an annual rate of 0.7 per cent, meaning the total stock of corporate debt is nearly 25 per cent below its late 2008 peak.

So, although rising credit in the banking sector is continuing to grow - pointing to a return to normality - Martin Beck of Capital Economics warns that “the recovery in lending continues to display an even more marked lack of balance than the economic recovery as a whole.”

(Capital Economics)