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UK mortgages and consumer credit card borrowing both decline - BBA

By Oliver Haill

Date: Friday 28 Apr 2017

UK mortgages and consumer credit card borrowing both decline - BBA

(ShareCast News) - Mortgage approvals and consumer credit card lending both fell in March according to fresh data from the banking industry, providing the reason for the fall in house prices announced elsewhere on Friday.
The number of mortgages approved for house purchases by the main high street banks fell to 41.1K in March from 42.2K in February.

Mortgage numbers fell short of the consensus forecast of 42.0K and brought the level slightly below 2016's 41.3K average.

On an annual basis, mortgage approvals were down by 6.4%.

Meanwhile, credit card lending continued to decline in March, while personal loans and overdrafts remained near lows amid increased consumer caution.

The fall in unsecured consumer credit was the second month in a row, resuming the decline since October's peak that had been interrupted by one month's spike in January.

Total net consumer borrowing on credit cards and on personal loans & overdrafts slowed to £247m in March from £337m and £458m in the previous two months.

Personal loans and overdrafts increased to £142m from a 14-month low of £64m the month before, still the second lowest level since January last year, and down from £385m in January.

Eric Leenders, BBA managing director for retail banking, said the slowing in annual growth was "perhaps mirroring the dip seen in retail sales volumes as price rises appear to have started biting into consumers' spending".

Retail sales volumes fell 1.4% quarter-on-quarter in the first quarter of 2017 and were down 1.8% month-on-month in March.

Economist Howard Archer at IHS Markit agreed, saying it tied in with consumers becoming more cautious as their purchasing power is increasingly diluted by rising inflation and muted earnings growth.

"It looks inevitable that the fundamentals for consumers will weaken further over the coming months with inflation continuing to rise due to the weakened pound and companies likely increasingly looking to hold down pay to limit their total costs.

"Indeed, it looks probable that inflation will move clearly above earnings growth over the coming months. Furthermore, the labour market also looks likely to come under mounting pressure despite its recent resilience," Archer said.

Not dissimilarly, the muted mortgage data was due to high house prices, suggesting that prices are unlikely to accelerate again this year, said economist Hansen Lu at Capital Economics.

The numbers were consistent with what has been seen elsewhere in the housing market, with March's RICS survey pointing to stalled demand growth, and helping to explain the 0.4% April fall in the Nationwide house price index, also released on Friday.

"Price expectations, while positive, are down compared to the start of last year. With demand growth stalled and price expectations having eased, it's no surprise that both prices and mortgage approvals are struggling to make headway," he said.

"Looking at the bigger picture, it is true that factors such as the drop in buy-to-let activity, the squeeze on real incomes, and the slower rate of job creation seen over the last six months are acting as headwinds on the housing market."

In recent times, some members of the Monetary Policy Committee have indicated trends in unsecured lending is one of the main variables they are monitoring when deciding on the appropriate settings for policy.

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