Page last updated at 11:21 GMT, Wednesday, 27 May 2009 12:21 UK

Uncertainty 'keeps borrowing low'

For sale sign
Lenders are still asking for high deposits for the best deals

Uncertainty over UK householders' financial position is dictating their low levels of borrowing, according to the British Bankers' Association (BBA).

Net mortgage lending by the UK's major banks of £2.7bn in April was at its lowest level for eight years.

But the number of mortgages approved for house purchases did increase slightly in April, to 27,685.

This remained 15.5% lower than a year earlier, as activity in the housing market was still very low.

'Behaviour'

Net new mortgage lending - which takes into account repayments and redemptions - was at its lowest since March 2001. This fell from £3.4bn in March to £2.7bn in April.

The general consensus is that fixed rate [mortgages] are as cheap as they are likely to get
Andrew Montlake, Coreco

New personal loans, often for purchases such as cars, made by the major UK banks was unchanged compared with the previous month at £1.5bn.

However, this was 39.3% lower than a year earlier, the BBA said.

"Households' uncertain financial circumstances not surprisingly continue to dictate consumer behaviour, both in the housing market and in generating only low demand for new personal loans," said BBA statistics director David Dooks.

But he pointed out that the number of loans for house purchases had stabilised.

The "safety-first" policy of householders is also in evidence when looking at the level of credit card borrowing. New spending on credit cards stood at £6.1bn in April, down 10.8% compared with a year earlier.

There was also an increase in saving, with personal deposits with the major banks rising in April.

However, the BBA said that the overall trend continued to decline. It has previously suggested that this was the result of savers moving funds into areas that would bring them higher returns, rather than regular accounts which have low rates of interest.

Sticking to deals

The number of people delaying remortgaging was also shown in the figures. The number of mortgage re-approvals - 25,418 in April - was at its lowest since December 1999.

This was the result of people taking advantage of low interest rates. Many are coming off fixed-rate deals and staying on the standard variable rate, instead of agreeing a new fixed-rate deal.

"Other loans, specifically remortgages, continue to decline as people take a 'wait and see' approach," said Andrew Montlake, director of mortgage broker Coreco.

"For those at higher loan-to-values, this could prove very costly, as the general consensus is that fixed rates are as cheap as they are likely to get, with lenders anxious to keep their margins high in order to claw back some much needed profit."

Ashley Brown, managing director of mortgage broker Moneysprite, said: "Even if people have the funds at their disposal, to actually commit in this turbulent, uncertain market is a leap of faith that many are simply unwilling to make. This is a demand-led, as much as a supply-led slowdown."

Brigid O'Leary, from the Royal Institution of Chartered Surveyors, said that there were few signs that the massive stimulus package from the Bank of England was having a marked effect on mortgage lending.

UK mortage approvals graph



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