UK Lending Conditions Ease

Posted: 01.05.2009

Lending to non-financial companies slowed in March, but the number of mortgages approved to buy houses hit the highest level in nearly a year, according to data from the Bank of England published on Friday.

The figures, published in the Bank’s monthly monetary and financial statistics report, underline that access to credit is constrained for both companies and individuals, but suggest that lending conditions have eased in the first quarter compared to the final three months of last year.

Lending to private non financial companies excluding securitisations rose by 0.2 per cent in March, compared to a 0.6 per cent growth in February. On an annual basis lending growth slowed to 3.2 per cent, close to the weakest rate since data began in 1998.

But over the first quarter lending growth rose by 6.1 per cent, compared to the record 3.1 per cent decline in the final three months of last year. That signals that companies will have found it easier to borrow in the early months of this year compared to the final few months of last year.

“The underlying trend is improving but the improvement is fairly gradual at the moment,” said Howard Archer, economist at IHS Global Insight.

Non-financial corporations holdings of M4 money – known as broad money – fell by £4.1bn in March after spiking up by £7.1bn in February. This is a fall signals that lending still remains tight, and companies are having to eat into their cash holdings because revenues are being hit during the recession.

“It is… too early for these data to reflect any traction as regards the Bank of England’s foray into unconventional policy territory [such as quantitative easing],” said Richard McGuire, economist at RBC Capital Markets. “What they do show, however, perhaps comports with the worst-is-behind-us message being transmitted by recent activity data.”

Meanwhile, lenders agreed 39,230 new mortgages to buy homes as building societies and other specialist mortgage lenders approved more loans, although lending by banks fell. That is a 4 per cent increase from February, and up 44 per cent since the record low at the height of the financial panic in November.

It is also the highest level of approvals since May of last year. But it is still 61 per cent below the peak of 131,000 mortgage approvals in November 2006. Meanwhile remortgage approvals remained fairly flat at very low levels during the month.

Interest rates paid on instant access consumer deposit accounts is now at 0.19 per cent from 0.16 per cent last month continuing to reflect the record cuts in interest rates by the bank of England to a low of 0.5 per cent.

However, interest rates on a standard two year fixed rate mortgage at 75 per cent loan to value have fallen far less sharply – hitting 3.98 per cent, down from 4.35per cent in February.

Since last September, the Bank has cut interest rates by 4.5 percentage points, but two year fixed mortgages at 75 per cent loan to value have fallen by about 2 per cent. Standard variable mortgages – which are tied to interest rate changes by the Bank – have fallen by nearly 3 percentage points to 4.06 per cent during the same time period.

*By Daniel Pimlott, Economics Reporter *

Published: May 1 2009 11:08 | Last updated: May 1 2009 11:08

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