THE number of mortgages approved by UK banks increased for the first time in four months in January, according to industry data.
However, UK Finance – the body that represents all the major high street banks – found lending to consumers fell, reflecting caution among households.
Total mortgage lending rose by 9.7 per cent to £21.9 billion in January compared with the same month a year ago.
Consumer credit declined by 0.2 percent in annual terms in January – the first drop since UK Finance’s new consumer credit series started in April 2017.
Much of the boost to mortgage lending could have come from a cut in stamp duty for first-time buyers.
But lending to businesses contracted by 1.4 per cent, with construction falling. Spending on credit cards rose by 5.8 per cent, or much faster than the growth in personal incomes, although the banks said that repayment levels on credit cards were also high.
The figures suggest that borrowers are switching away from personal loans, which declined by 15 per cent on the month, and preferring to borrow via their credit cards instead.
Deposits at banks and building societies advanced just two per cent on the year, hitting a total of £835bn, with ISA products continuing to see outflows.
UK Finance warned 2018 is likely to be a difficult year for the housing market.
Howard Archer, chief economic advisor to the EY Item Club said: “UK Finance reported that mortgage approvals for house purchases picked up to a three-month high of 40,117 in January after slowing to a 56-month low of 36,085 in December from 39,624 in November, 40,599 in October and 41,647 in September.
“January’s rebound in mortgage approvals suggests that there may have been a hit to activity in December as a reaction to the Bank of England raising interest rates in November.
“It is also possible that cutting stamp duty for first-time buyers in the Chancellor’s Budget may have provided limited support to mortgage approvals in January. The abolition of stamp duty for first time buyers for properties costing up to £300,000 (and on the first £300,000 for properties costing up to £500,000) should also provide some support to house prices.
“It should be noted that housing market activity can be particularly volatile around Christmas and New Year.
“While January’s rebound in mortgage approvals suggests that December’s drop overstated the weakness of housing market activity, it is still subdued. Indeed, January saw mortgage approvals for house purchases at the third lowest level since September 2016.
“Furthermore, at 40,117 in January, mortgage approvals for house purchases were still 22.2 per cent below their long-term (1997-2018) average of 51,563
“The latest survey evidence also points to lacklustre housing market activity early on in 2018.
“New buyer enquiries were down for a 10th month running while agreed sales fell for an 11th month.
“The latest UK Finance mortgage approvals data does little to dilute our belief that 2018 will be a difficult year for the housing market and price gains over the year will be limited to a modest two per cent.
“The fundamentals for house buyers are likely to remain challenging. The squeeze on consumers’ purchasing power remained significant going into 2018, and it is likely to only gradually ease as the year progresses.”
Source: The National